Centre committed to compensate states for 5 years for revenue loss due to GST rollout: Finance Minister

The Centre is committed to compensate states for five years for the revenue loss due to GST implementation as provided in the statute, Finance Minister Nirmala Sitharaman said on Tuesday.

The GST Constitutional Amendment Act provides for the centre compensating the state for five years for loss of revenue arising on account of implementation of the goods and services tax (GST) and during the transition period, the states' revenue is protected at 14 per cent per annum over the base year revenue of 2015-16, she said.

"The central government is committed for GST compensation to States/UTs for 5 years as per the Constitutional provision," Sitharaman said in a written reply in the Rajya Sabha.

She was replying to a question on whether the government is aware of the fact that the projected 14 per cent growth rate of revenue is not attained by any state and, if so, whether the government intends to provide the GST compensation after 2022.

GST, which subsumed indirect taxes like excise duty, service tax and VAT, was rolled out from July 1, 2017. The five year period for compensation ends in June 2022.

After the 45th GST Council meeting, chaired by the Union Finance Minister and comprising state finance ministers, on September 17, the Centre had said that the regime of paying GST compensation to the states for revenue shortfall will end in June next year.

However, 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 fiscal years to compensate states for GST revenue loss.

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In a reply to a separate question, Sitharaman said Rs 37,134 crore and Rs 14,664 crore worth GST compensation is yet to be released to states for 2020-21 and 2021-22 fiscal years respectively.

Under the GST law, states are compensated for any loss of revenue arising on account of implementation of GST for five years till June 2022. The compensation amount to be paid from the compensation fund which is arrived at by levying cess on top of the highest tax slab on luxury, demerit and sin goods.

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

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

"Centre is committed to release full GST compensation to the States/UTs as per GST (Compensation to States) Act, 2017 for the transition period by extending the levy of Compensation cess beyond five years to meet the GST revenue shortfall as well as servicing the loan borrowed through special window scheme," Sitharaman said.