GST aid to states 70% higher than cess fund, gulf to widen this fiscal

By: |
July 28, 2020 5:30 AM

The guaranteed growth to states’ revenue during the time of slowing GST collection (FY 20 collection grew at 3.8% to Rs 12.2 lakh crore) growth has created a wide gulf between the states' protected revenue and GST collections.

The GST law mandates that states be compensated for any shortfall in reaching a 14% revenue growth target, which is calculated on FY 2015-16 revenue base from subsumed taxes.

The Centre has released Good and Service Tax (GST) compensation of Rs 13,806 crore to the states for March, 2020, which takes the total aid for FY20 to Rs 1.65 lakh crore. The collection under the compensation cess fund was only Rs 95,444 crore in the fiscal, which means the compensation payments were over 70% higher than the fund.

A part of this gap was bridged by money from the compensation fund that remained unutilised in the first two years of GST. Further, a sum of Rs 33,412 crore was also ploughed back from consolidated fund of India to compensation fund after analysis showed that Centre had apportioned more I-GST to its own kitty in FY 2017-18 than was due to it. This had happened due to the ad-hoc method of IGST settlement developed in the first few months of FY 2017-18.

The data showed that manufacturing states claimed the highest compensation which included Maharashtra (Rs 19, 233 crore), Gujarat (Rs 14,801 crore), Tamil Nadu (Rs 12,305 crore ) Karnataka (Rs 18,628 crore) and Punjab (Rs 12,187 crore).

The GST law mandates that states be compensated for any shortfall in reaching a 14% revenue growth target, which is calculated on FY 2015-16 revenue base from subsumed taxes. The compensation is to come from fund collected through cess imposed on certain luxury/sin items, which is paid bi-monthly and is to continue till 2022 — five years of GST regime.

The guaranteed growth to states’ revenue during the time of slowing GST collection (FY 20 collection grew at 3.8% to Rs 12.2 lakh crore) growth has created a wide gulf between the states’ protected revenue and GST collections. This is likely to be a bigger problem in the current fiscal (FY2020-21) as protected revenue jumps to Rs 63,720 crore per month from Rs 55,900 crore in FY 2018-19. In the FY17-18, it was Rs 43,000 crore a month.

In FY19, compensation cess collection stood at Rs 95,081 crore while disbursal to states was at Rs 69,275 crore. In FY18, the compensation payout was Rs 41,146 crore against collection of Rs 62,611 crore. The government had an unutilised cess fund of Rs 47,271 crore from FY18 and FY19, which it had employed last fiscal to augment collection.

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