Government Pays Rs 86,912-Crore GST Compensation Dues To States

The central government released Rs 86,912 crore to settle all pending goods and services tax compensation dues owed to states as on May 31, with just a month to go before the five-year special support ends.

"...Only about Rs 25,000 crore is available in the GST Compensation Fund," according to a statement by the Finance Ministry on Tuesday. "The balance is being released by the Centre from its own resources pending collection of Cess," a statement issued by the Finance Ministry said.

States will receive the final GST compensation payout June.

"The decision was taken to assist the States in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year," the statement said.

When GST was introduced in July 2017, the states were assured a compensation to make up for the revenue loss after giving up their taxation powers. It was applicable for five years based on revenue projection assuming a compounded growth rate of 14%.

But as revenue lagged projections and the pandemic disrupted the economy, cess collection fell. To meet the gap, the central government borrowed and released Rs.1.1 lakh crore in 2020-21, and Rs 1.59 lakh crore in 2021-22 from the RBI as back-to-back loans to meet part of the shortfall.

From July 2022, this compensation period draws to a close. The compensation cess, however, will continue till 2026 to pay back the loans taken by the central government between 2020 and 2022.

A request by several states to extend the compensation period was tabled in the last GST Council meeting in December 2021. The matter is expected to be discussed and a decision is likely in the next GST Council meeting after the first week of June.