The Centre said on Tuesday that an amount of 53,661 crore was yet to be released to the state governments towards fully compensating them for their goods & services tax (GST) revenue shortfall for the financial year 2021-22. All dues from previous years have been settled.
Replying to a question on “why non-BJP states have higher GST compensation dues,” finance minister Nirmala Sitharaman told the Rajya Sabha that the dues were being settled as per a formula worked out by the GST Council.
“There is no differentiation made on (political lines),” the minister said. She added that it was unfair to cast aspersions on the GST Council, which is a federal body where every state is represented by its finance minister.
The proceeds from the relevant cesses fell far short of the funds required to compensate the states for their ‘GST revenue shortfall’ in 2020-21 and 2021-22.
Following a GST Council decision, the Centre released 1.1 lakh crore for 2020-21 and 1.59 lakh crore for 2021-22 as back-to-back loans to make good the shortfall. The Centre has mobilised the funds through borrowings under a special window provided by the Reserve Bank of India. So far this fiscal, 96,576 crore has also been released to the states on account of GST compensation from the designated cess fund.
Under the GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of GST implementation from July 1, 2017. The shortfall is calculated assuming a 14% annual growth in GST collections by states over the base year of 2015-16.
While the GST compensation mechanism is to end on June 30 this year, several states have demanded that the facility be extended. The Centre has however reiterated that the statutory requirement was to compensate the states for GST shortfall only for the initial five years after GST’s launch. Also, it pointed out that just for servicing the loan taken to compensate the states for 2020-21 and 2021-22, the cesses will need to be in place till the end of FY26.