Centre releases Rs 35,000 cr GST compensation to states

In a surprise move, the Centre Monday released GST compensation of Rs 35,298 crore to states and union territories just two days ahead of a crucial GST Council meeting, which was expected to be a stormy one in the wake of states demanding compensation due to them for the past two months and the Centre expressing its inability to do so due to lack of resources.

“The central government has released GST compensation of Rs 35,298 crore to states and union territories today,” the Central Board of Indirect Taxes and Customs (CBIC) said in a tweet.

The move comes after seven opposition-ruled states threatened to approach the Supreme Court for non-payment of their dues, which they said was their constitutional right.

The GST Council meeting on Wednesday is expected to discuss measures to raise revenues, increase tax base and tax compliance as the GST collections have been falling of late.

GST collections fell short of the Budgeted estimates by about 40% in the April-November period. That will translate into an estimated Rs 80,000 crore of total revenue loss to the centre. The overall tax revenue shortfall could go upto Rs 2.03 lakh crore.

However, there are little chances of a rate hike in the lower GST slabs that impact the common man hurt by an already high inflation in food prices, telecom tariff and medicine.

Last week, India's former chief economic advisor Arvind Subramanian had warned against raising GST rates at a time when the economy was growing at its slowest pace in six years.

Though the Centre has yet not discussed the issue of GST rate hike with states, it is expected that some more luxury items will be included in 28% rate slab and gold could attract a bigger duty of 5% from the current three.

The Centre also fears that states will start increasing VAT on transport fuel, which is still outside GST, to garner more revenue, once the GST rates are hiked. The move could be stoke inflation in petrol and diesel and trigger a huge public backlash.