Government releases entire GST compensation up to May

The Centre has released ₹86,912 crore which is the entire amount of goods and service tax (GST) compensation payable to states up to May 31, 2022, the Union finance ministry said on Tuesday.

The decision has been taken despite only about ₹25,000 crore being available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of cess, the ministry added.

This decision was taken to assist the states in managing their resources and ensuring that their programmes, especially the expenditure on capital is carried out successfully during the fiscal year.

For providing compensation to states under the GST regime, cess is being levied on certain goods and the amount of cess collected is being credited to the Compensation Fund. The compensation to states is being paid out of the Compensation Fund from 1 July 2017.

Bi-monthly GST compensation to states for the period 2017-18, 2018-19 was released on time out of the Compensation Fund.

As the states’ protected revenue has been growing at 14% compounded growth whereas the cess collection did not increase in the same proportion, the Covid-19 pandemic further increased the gap between the protected revenue and the actual revenue receipt including reduction in the cess collection.

In order to meet the resource gap of the states due to short release of compensation, the Centre has borrowed and released ₹1.1 lakh crore in 2020-21 and ₹1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection.

All the states have agreed to the decision.

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