Ahead of the end of five-year assured compensation period on June 30, the Centre on Wednesday acknowledged that an amount of Rs 78,704 crore was yet to be released to the state governments towards fully compensating them for their Goods and Services Tax (GST) revenue shortfall for the financial year 2021-22.
However, the government has already paid GST compensation for 2017-18, 2018-19, 2019-20 and 2020-21.
“Including the assistance released on back-to-back basis, Rs 7.35 trillion has been released to states till now and, currently, only for the year 2021-22, compensation of Rs 78,704 crore is pending due to inadequate balance in the fund, which is equivalent to compensation of four months,” the finance ministry said in a status report on GST compensation.
At the time of introduction of GST, the Constitution amendment provided that the Parliament, by law shall provide compensation to states for a period of five years for loss of revenue due to introduction of GST. Accordingly, the GST Compensation to States Act was legislated which provides for release of compensation against 14% year-on-year growth over revenues in 2015-16 from taxes subsumed in GST. This compensation cess is credited to the compensation fund and as per the Act, all compensation is paid out of the fund. Currently, cess is levied on items like pan masala, tobacco, coal and cars.
Compensation of about Rs 49,000 crore has been released for 2017-18 from the fund, which increased to Rs 83,000 crore for 2018-19 and further to Rs 1.65 trillion in 2019-20. For these three years, almost Rs 3 trillion compensation was released to states.
However, the compensation requirement increased substantially during 2020-21 due to impact of Covid on revenues. To ensure that states have adequate and timely resources to combat Covid and related issues, Centre borrowed Rs 1.1 trillion in 2020-21 and Rs 1.59 trillion in 2021-22 and passed it on to states on a back-to-back basis.