Delayed GST compensation: 5 states under acute fiscal pressure

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Updated: November 21, 2019 1:31:21 AM

GST compensation for August and September is outstanding till date, FMs of Delhi, West Bengal, Kerala, Punjab and Rajasthan said in a joint statement

Delhi estimated the delayed compensation payment at Rs 2,335 crore while West Bengal has claimed that it hasn’t received nearly Rs 1,500 crore. Delhi estimated the delayed compensation payment at Rs 2,335 crore while West Bengal has claimed that it hasn’t received nearly Rs 1,500 crore.

Finance ministers of five states on Wednesday raised an alarm over the delayed compensation payment from the Centre for the August-September period, and claimed that they were facing acute fiscal pressures as a result. The finance ministers of Delhi, West Bengal, Kerala, Punjab and Rajasthan issued a joint statement in this regard after meeting here to discuss the issue.

Speaking to the press after the meeting, Kerala finance minister Thomas Isaac said that Rs 1,600 crore dues are pending for the state while Punjab pegged the amount at Rs 2,100 crore. Delhi estimated the delayed compensation payment at Rs 2,335 crore while West Bengal has claimed that it hasn’t received nearly Rs 1,500 crore. The payment owed to Rajasthan wasn’t immediately clear.

“GST compensation for the month of August and September, required to be paid by the central government sometime in October, continues to be outstanding till date.

No explanation whatsoever has been furnished for this delay of nearly one month. As a result, states are facing acute pressure on fiscals, some already resorting to ways and means or even overdrafts,” a joint statement of the state finance ministers said.

Isaac said that the Centre should come out with an interim mechanism to make this payment. He suggested that the central government could borrow to settle states’ compensation dues. Punjab finance minister Manpreet Singh Badal said that if the compensation dues are not made available immediately, the state would have to resort to overdraft.

Slowing economy, tax rate cuts and input tax credit frauds have impacted the GST revenue growth negatively in September and October compared with same periods last year. While the average monthly protected revenue of all states is about Rs 55,900 crore, the actual collections are falling woefully short. The compensation cess collections are stagnating at Rs 8,100 crore/month, the same level nominally as last year.

The indirect tax board on Wednesday clarified that no unsettled IGST currently exists. This would mean that the annual compensation shortfall of all states could be around Rs 30,000-35,000 crore. This would affect Centre’s ability to pay states the compensation amounts in the last quarter of the fiscal.

Further, the states said that nearly 60% of their tax revenue comes from GST, and delayed payment to bridge revenue deficit of as much 50% in some cases could potentially bring the activities of the state to a grinding halt.

The FMs emphasised that a a constitutionally guaranteed GST revenue growth of 14% year-on-yeae ‘was a necessary enabler in states agreeing to subsume their fiscal sovereignty into GST.’ The current delay has shaken the confidence of the states who have so far supported GST in a spirit of rare bonhomie, the joint statement said.

“FMs also suggested that the matter should be placed on the agenda of the next meeting of the GST Council and healthy mechanism be evolved to provide compensation in future with due urgency and judiciousness,” it said.

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