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No money to pay states their GST share, govt tells parliamentary panel

Rahul Shrivastava     July 30, 2020

Since the grand launch of GST regime three years ago in 2017, the government has, for the first time, acknowledged that it has no money to pay the state governments their share of the GST revenues. Union Finance Secretary Ajay Bhushan Pandey apparently told a parliamentary panel that "the central government is in no position to pay the share of the states" under the revenue share formula.

The slowdown in the economy before the coronavirus breakout had also led to lesser GST collections. Since August 2019, GST collection has dipped to almost half of what is due to states.

Members of the Opposition parties are now up in arms over Pandey's statement.

The first meeting of the Parliamentary committee saw Opposition members criticising the government over non-release of the states' share. The members pointed out that GST mandates that Centre must compensate states for shortfall in reaching 14 per cent revenue growth target, calculated on FY16 revenue base from taxes subsumed in GST. They said that states have incurred huge losses in the fight against coronavirus and the resultant migrant crisis.

A member of the panel told India Today TV, "The central government was in a rush to push the implementation of GST law. The resource crunch is highlighting that the law was hastily drawn and shoddily implemented. The deficiencies are being exposed by the economic crisis triggered by the pandemic and the Centre is as always clueless on how to resolve the situation."

The Finance Secretary, sources said, retorted that the GST Act was built with provisions to rework the formula for compensation to states if the revenue collection dropped below a certain level. He added that the issue is under discussion in the GST Council.

Meanwhile, a Ministry of Finance release on Monday had said that the central government released Rs 13,806 crore of GST compensation pertaining to FY 2019-20. It added that with this amount, the entire compensation up to 2019-20 has been released to states.


The total amount of compensation released for the year 2019-20 was Rs 1,65,302 crore, while the amount of cess collected in the year 2019-20 was Rs 95,444 crore. The Centre added that the balance cess amount collected during 2017-18 and 2018-19 was also utilised for compensation for 2019-20. Additionally, Centre also transferred 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.

According to a background note prepared by the government, "Since the end of August 2019, the central government started realising the impending precarious position in paying GST compensation to the states and UTs as the compensation cess requirement was being double of the average monthly cess collection." It said that on an average the monthly GST compensation cess requirement was pegged at Rs 14,000 crore while the cess collection average was only Rs 7,000-8,000 crore per month.

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

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

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