GST compensation cess may see a shortfall of ₹63,000 Crore

Source: Economic Times

Amidst the decline in revenue, the government is staring at a shortfall of ₹63,000 Crore in Goods and Services Tax (GST) compensation payout to states for FY20. The delay in the release of compensation to states could severely affect the flow of funds across the country and has also been a bone of contention between the Centre and states government.

The issue of delayed compensation payment to states was discussed in detail at the 38^th GST Council Meeting and a detailed presentation was also made before the Council. According to the presentation, the compensation requirement for states is expected to be around ₹1.6 Lakh Crore for the current fiscal, growing at a rate of 5%. On the other hand, the cess mop-up is expected to be around ₹96,800 Crore, leading to a significant shortfall.

Although the required collections have more than doubled over the previous financial year – from ₹69,275 Crore – the actual collections have remained nearly unchanged due to slowing economy. Compensation cess collection for FY19 was ₹95,081 Crore, slightly lower than ₹96,800 Crore that is expected this financial year ending March 2020.

Compensation payout released for August and September

Just two days prior to the GST Council meeting on December 18, the Centre had released ₹35,298 Crore as compensation payout to states for August and September. As per the rating agency ICRA, the shortfall has been estimated to be about ₹2.2 Lakh Crore for all states.

The Union Finance Minister Nirmala Sitharaman had said that the total cess collected in 2017-18 was ₹62,596 Crore, out of which ₹41,146 Crore was released to states. The remaining ₹15,000 Crore was accumulated in the cess fund. She added that in the next year, ₹95,081 Crore was collected and ₹69,275 Crore was released to states but cess accumulation was zero.