<p>Even if the Goods and Services Tax (GST) compensation is stopped, it would have little bearing on Karnataka’s finances in the coming years, according to officials.</p>.<p>For the 2022-23 fiscal, GST compensation had accounted for only Rs 5,000 crore of the budget estimates.</p>.<p>Uncertainty remains on whether or not the GST compensation will be extended. “A final decision will be conveyed to the states in August,” Chief Minister Basavaraj Bommai said. </p>.<p>Sources in the Finance Department say that the state had anticipated GST compensation would end on July 22, despite demands from almost all the states to continue with the scheme.</p>.<p>As a result, provisions were made in the budget to increase revenue from other sources - such as Commercial Tax and Excise - to offset the loss caused by a possible withdrawal of compensation.</p>.<p>However, this is in contrast to the Mid Term Fiscal Plan (MTFP) for 2022-23, which expressed caution on the discontinuation of GST compensation. The MTFP had warned that “the reduced revenue collection (due to the end of GST compensation) may result in reduction of capital expenditure in future years.”</p>.<p>GST compensation was assured to state governments for a five-year period from July 1, 2017, after states were stripped off the powers to levy taxes. The compensation scheme was to cover any loss of revenue from the new taxes for a period of five years.</p>.<p>GST compensation for the state had increased from the budget estimate of Rs 6,246 crore in 2017-18 to a maximum of 17,249 crore in 2019-20. Owing to pending dues of the past years, Karnataka received a maximum of Rs 25,267 crore as GST compensation in the 2021-22 fiscal, state budget documents show.</p>.<p>A senior official of the Finance Department noted that compensation for 2020-21 and 2021-22 fiscal was granted to states by raising loans from banks as the Centre struggled to raise funds during the Covid pandemic.</p>.<p>“The Union government is of the view that the before releasing any additional compensation to the states, revenue generated should be used to repay the loans,” the official<br />said.</p>.<p>The MTFP for 2022-23 noted that the pending GST compensation will be “provided in future years based on GST cess collections and debt repayment schedule of loans availed by GOI to lend the States in lieu of GST compensation.”</p>
<p>Even if the Goods and Services Tax (GST) compensation is stopped, it would have little bearing on Karnataka’s finances in the coming years, according to officials.</p>.<p>For the 2022-23 fiscal, GST compensation had accounted for only Rs 5,000 crore of the budget estimates.</p>.<p>Uncertainty remains on whether or not the GST compensation will be extended. “A final decision will be conveyed to the states in August,” Chief Minister Basavaraj Bommai said. </p>.<p>Sources in the Finance Department say that the state had anticipated GST compensation would end on July 22, despite demands from almost all the states to continue with the scheme.</p>.<p>As a result, provisions were made in the budget to increase revenue from other sources - such as Commercial Tax and Excise - to offset the loss caused by a possible withdrawal of compensation.</p>.<p>However, this is in contrast to the Mid Term Fiscal Plan (MTFP) for 2022-23, which expressed caution on the discontinuation of GST compensation. The MTFP had warned that “the reduced revenue collection (due to the end of GST compensation) may result in reduction of capital expenditure in future years.”</p>.<p>GST compensation was assured to state governments for a five-year period from July 1, 2017, after states were stripped off the powers to levy taxes. The compensation scheme was to cover any loss of revenue from the new taxes for a period of five years.</p>.<p>GST compensation for the state had increased from the budget estimate of Rs 6,246 crore in 2017-18 to a maximum of 17,249 crore in 2019-20. Owing to pending dues of the past years, Karnataka received a maximum of Rs 25,267 crore as GST compensation in the 2021-22 fiscal, state budget documents show.</p>.<p>A senior official of the Finance Department noted that compensation for 2020-21 and 2021-22 fiscal was granted to states by raising loans from banks as the Centre struggled to raise funds during the Covid pandemic.</p>.<p>“The Union government is of the view that the before releasing any additional compensation to the states, revenue generated should be used to repay the loans,” the official<br />said.</p>.<p>The MTFP for 2022-23 noted that the pending GST compensation will be “provided in future years based on GST cess collections and debt repayment schedule of loans availed by GOI to lend the States in lieu of GST compensation.”</p>
