Cash strapped states seek early release of GST dues in wake of Covid 19

States have started demanding early release of goods and services tax (GST) compensation for fiscal year 2019-20 in view of the Covid-19 crisis putting the already stretched financial position of the Centre under further stress.

Sources said that at least three states – Punjab, West Bengal and Tamil Nadu raised the issue of GST compensation dues with Prime Minister Narendra Modi during his April 9 video conferencing with chief ministers on coronavirus outbreak.

The three together have GST dues of around Rs 15,000 crore till January 2020. The total dues of all states as Goods and Services Tax (GST) compensation for December 2019 and January 2020 works out to about Rs 30,000 crore.

GST compensation is released at the end of every two months' period. So, for 2019-20, dues are actually paid only up to January with compensation for the February-March period getting settled in next fiscal.

Centre has been slow in laying GST compensation for last year that has made this issue a hot topic of discussion at all previous GST council meetings. States like West Bengal, Punjab, Delhi have raised the issue of delays in payment on numerous occasions.

The voice has become stronger now as most states are witnessing a slowdown in goods and services consumption during the lockdown and want central support to carry out spending on Covid-19 related relief measures.

The last tranche of GST compensation was paid in February, when the Centre released Rs 19,950 crore as GST compensation cess to the states/union territories for 2019-20. With this GST compensation, the central government has released a total of Rs 1,20,498 crore towards GST compensation to the states and UTs during last fiscal.

This is higher than revised estimate of cess collection of little over Rs 98,000 crore or even budget estimate of over Rs 1.09 lakh crore for the previous financial year. In the supplementary demands for grants, finance minister has got parliament approval for additional spending of Rs 20,000 crore required for releasing GST compensation for states and union territories.

After the GST regime was put in place, the Centre assured the states, through legislation, that the revenue shortfall will be compensated fully for first five years.

The 2015-16 was assumed to be the base year for calculating the compensation amount for a financial year. The growth rate of revenue for a state during the five-year period is assumed at 14 per cent per annum. Any shortfall in this growth number is to be compensated by the Centre.

For the Centre, payment of GST compensation dues would further strain its resources that is already impacted with less than encouraging overall tax collections. With economic growth now projected to slump and pressure on it to come out with more economic packages to take the country out from a recession owing to Covid-19, the centre is in a bind how to manage the needs..