Several states request GST compensation extension beyond June 2022: Sitharaman

Finance Minister Nirmala Sitharaman stated on Monday that many states have requested for extension of the compensation mechanism under the GST beyond June 2022. 

"Many States have requested for extension of the compensation period during the deliberations in GST Council and in letters addressed to the Central Government," wrote Sitharaman in a written reply to a question in the Lok Sabha on Monday. 

As per the Goods and Services Tax (GST) law, states have been guaranteed that they would be compensated bi-monthly for any loss of revenue in the first five years of GST implementation from July 1, 2017. The five-year period ends in June 2022. 

"In this regard, it is stated that as per Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016, Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years from the date of implementation of GST," wrote Sitharaman. 

She further explained that during the transition period, the states' revenue is protected at 14 per cent per annum over the base year revenue of 2015-16. The compensation amount to be paid from the compensation fund is arrived at by levying cess on top of the highest tax slab on luxury, demerit and sin goods.

"Central Government is committed for GST compensation to States/UTs for 5 years as per the Constitutional provision," she added. 

GST compensation for financial years 2017-18, 2018-19 and 2019-20 has already been paid to states.

Since collections in the compensation fund are falling short of requirement, for 2020-21 and 2021-22, the Centre has borrowed funds worth Rs 1.10 lakh crore and Rs 1.59 lakh crore, respectively and passed it on to states as back-to-back loans.

The compensation cess, levied on luxury and demerit goods, will continue to be collected till March 2026 to repay the borrowings that were done in 2020-21 and 2021-22 to compensate states for GST revenue loss.

(With PTI Inputs)

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