Business Today
Loading...

GST compensation cess collection falls short by Rs 70,000 crore in FY20

According to Finance Ministry sources, the central government started realising sometime in August 2019 the impending precarious position in paying GST compensation to the states and UTs

twitter-logoDipak Mondal | July 27, 2020 | Updated 21:52 IST
GST compensation cess collection falls short by Rs 70,000 crore in FY20

Centre's GST compensation to states exceeded almost Rs 70,000 core to compensation cess collected in 2019-20. While the Centre collected on Rs 95,444 crore during the year, it had to pay Rs 1.65 lakh crore as compensation to states for any loss to revenue due to implementation of GST.

A part of the gap was filled by excess cess collected during 2017-18 and 2018-19, while rest was made good by transfer of Rs Rs 33,412 crore from Consolidated Fund of India to the Compensation Fund as a part of an exercise to apportion balance of IGST pertaining to 2017-18.

The Centre had collected a total compensation cess of Rs 62,611 crore in 2017-18, out of which Rs 41,146 crore was released to states and union territories as GST compensation. In 2018-19, Rs 95,081 crore were collected as compensation cess out of which Rs 69,275 crore were released to states and UTs as GST compensation.

ALSO READ: Govt dumps new GST return system; to continue with modified version of existing one

While in first two years of GST, compensation cess collected exceeded the amount required to pay the states as compensation, the government realised that the compensation cess collected would be inadequate for compensating the states in 2019-20.

According to Finance Ministry sources, the central government started realising sometime in August 2019 the impending precarious position in paying GST compensation to the states and UTs as the compensation cess requirement was double of the average monthly cess collection. On an average, the monthly GST compensation cess requirement was around Rs 14,000 crore while the cess collection average was only in the range of Rs 7,000 to Rs 8,000 crore per month.

The situation can worsen further as the government now estimates that compensation requirement may go up to Rs 2.5 lakh crore in 2020-21 owing to coronavirus pandemic and the adverse impact it will have on the revenues of states. The collection of compensation cess will fall drastically due to subdued economic activities owing to the pandemic.

ALSO READ: Reducing GST on hand sanitisers will hurt consumers and manufacturers, clarifies Centre

As per the provisions of GST law, the centre would compensate the states for loss of revenue due to introduction of GST for the first five years (2017-2022). The loss to revenue is calculated assuming a 14 per cent growth per annum on the base year figure of 2015-16 of the taxes subsumed in GST.

The Centre and the states are now exploring different avenues for filling the gap between compensation cess collected and the compensation required to be paid to the states. The governing body, GST Council, is now looking at the possibility of borrowing from the market to bridge the shortfall.

Meanwhile, manufacturing states like Maharashtra (Rs 19,233 crore), Karnataka (Rs 18,628 crore), Gujarat (Rs 14,801 crore), and Tamil Nadu (Rs 12,305 crore) were the top recipients of the compensation among the states in 2020-21.

ALSO READ: Govt plans stern action against 'risky' exporters

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close