Rs 60,000 crore likely compensation to states this year for revenue loss under GST

The GST Council has estimated that in the current financial year, the total compensation cess required this year to pay to the states to compensate for the loss of revenue would be around Rs 60,000 crore compared to Rs 48,000 crore paid in the eight months of the last financial year.

The GST was implemented from July 2017, and hence revenue from GST was available for the eight-month period last year.

According to finance minister Arun Jaitley, based on Rs 48,000 crore compensation cess paid to state in eight months last year, for full year the compensation paid to the states should have been Rs 72,000 crore.

After factoring in 14 per cent increase in revenue growth this year, the total compensation cess to be paid this year should have been Rs 82,000 crore.

However, the finance minister said that due to better settlement of integrated GST (IGST) and improvement in collections this year, in the first six month the compensation paid to the sates stood at Rs 30,000 crore. "So by extrapolating from this the full year compensation cess to be paid to states should be Rs 60,000 crore," said Jaitley.

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The finance minister said that while the states have shown improvement in GST collection in the current financial year, he admitted that the revenue collection target may not be met as the target itself is very stiff.

"If you look at the base year of 2015-16 and factor in 14 per cent compounded annual growth rate over three years, the target for this year would be around 50 per cent over the 2015-16 collections," he said.

Though he said most of the consuming and manufacturing states have shown improvement in GST collections, states like Punjab, Pudduchery and Himachal Pradesh have not shown improvement in collections.

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To study the reasons for poor collection in these states, the council has decided to form a 7 Member Group of Ministers to study the revenue trend, including analysing the reasons for structural patterns affecting the revenue collection in these states.

The Group of Ministers will be assisted by the committee of experts from Central Government, State Governments and the National Institute of Public Finance and Planning (NIPFP), who would study and share the findings with GoM. The GoM in turn would give its recommendation to the GST Council.