States demand extension of GST compensation period
The Opposition-ruled states have raised their pitch for extending the period of Goods and Services Tax compensation cess payment to states beyond July 2022 when it is legally going to lapse.
The Centre on Friday had made it clear that it will not be paying the states any compensation cess beyond July 2022. However, it will keep collecting such cess from consumers till March 2026 to pay off the market borrowings that it has been conducting to compensate states for their losses including from the Covid-19 pandemic.
Kerala Finance Minister K N Balagopal demanded compensation beyond next year saying the state was already grappling with a significant revenue shortfall.
Kerala will receive GST compensation of over Rs 13,000 crore and another one-time grant of over Rs 19,000 crore in the current fiscal ending March 2022, he said.
In case the GST compensation ends next year, then the state will face further revenue shortfall, he said.
The cess is currently levied on top of the GST rate on certain luxury and sin goods to fund the compensation amount for states.
“While we are broadly, and firmly in favour of the continuation of the compensation mechanism, we are concerned by many of the details,” Tamil Nadu Finance Minister P Thiaga Rajan said.
He, however, said that no final decision will be made on the issue without the benefit of the time needed to fully assess the options.
Delhi Deputy Chief Minister Manish Sisodia said the matter of compensation cess would be referred to a group of ministers (GoM).
The Centre has estimated the shortfall in GST compensation payable to states in the current fiscal year at Rs 2.59 lakh crore, of which about Rs 1.59 lakh crore would have to be borrowed this year.
Last fiscal year too, the Centre borrowed and released to states Rs 1.10 lakh crore towards GST compensation.
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