Centre releases Rs 35,000 crore GST compensation to states ahead of big meet – business news

The central government on Monday released Rs 35,298 crore to compensate states for revenue losses for two months, August and September, addressing fears that it would not honour the Goods and Services Tax regime’s federal compact, although some states said they would still raise the issue at the coming meeting of the GST Council, and also demanded that the compensation for October and November be released.

The move comes two days ahead of the meeting of the GST Council.

In a tweet, the Central Board of Indirect Taxes and Customs (CBIC) confirmed the amount, but did not disclose the period for which the compensation was paid.

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A finance ministry official, who asked not to be named, confirmed that the compensation for two months, August and September, has been released. The Centre still has to pay compensation for October and November.

The official said the delay in payment was because the compensation cess fund was exhausted. Compensation cess is levied on luxury items and sin goods such as tobacco products, aerated water, automobiles, and coal. The cess is levied to compensate states for their revenue losses due to the transition from a decentralised value-added tax (VAT) regime to the unified GST regime.

The finance minister of a state ruled by a non-BJP party said on condition of anonymity that the release of compensation for two months wasn’t good enough. “We want compensation to be paid for the four months – August, September, October and November — as states are facing an acute funds crunch, which is also because of the economic slowdown. It is not an act of charity by the Centre. States have to be compensated as per the law and the Centre must honour its commitment in letter and spirit.”

The finance minister of another non-BJP-ruled state said on condition of anonymity that “the inordinate delay in paying compensation should be raised in the GST Council meeting on Wednesday”.

The Goods and Services Tax (Compensation to States) Act, 2017 provides for the levy of compensation cess on certain luxury items and sin goods to compensate states and Union territories for the loss of revenue due to shifting from a new indirect tax regime to GST from July 2017 for five years. This period can be increased by the GST Council.

As per the GST Act, loss of revenue to the states shall be calculated and compensation released at the end of every two month-period. It shall be finally calculated for every financial year after receipt of final revenue figures as audited by the Comptroller and Auditor General of India.

The Centre has delayed paying this compensation to the states on account of inadequate cess collection.

Finance minister Nirmala Sitharaman has repeatedly reassured states that the government would pay the compensation, which guarantees a revenue increase of 14% to the states. At the Hindustan Times Leadership Summit earlier this month, she underscored that “we will honour the compact, there is no question about it”.

Last week, she reiterated this in the Rajya Sabha. “There is no need for any suspicion to be there in the mind of anybody, thinking why the Centre is holding it back. No. We will honour our commitment.”

Hours before the release of the compensation fund to the state on Monday, West Bengal finance minister Amit Mitra shot off a letter to Sitharaman on non-payment of GST compensation to the states, saying that this has “wreaked havoc” on their finances.

“In my letter dated 23rd November 2019, I had elaborately impressed upon you the context in which the constitutional guarantee was given to the States. We urge you to honour that so that the current mistrust surrounding this issue between the Centre and the States is set to rest for all times to come,” he said in the letter asking for her “immediate intervention” on this matter before the GST Council’s meeting on Wednesday.

A similar letter was written by the finance minister of Delhi, Manish Sisodia to the Union finance minister on Monday, raising the issue of a delay in paying compensation of Rs3,698 crore. HT has reviewed both the letters.