Categories: Business

GST Council on state compensation again meets in July: Finance Minister

Finance Minister
Image Source: GOOGLE

new Delhi. After the nationwide shutdown, economic activity across the country has resulted in a steep decline in GST collections. In view of this, the Central Government may consider giving GST compensation to the states. The first meeting of the Goods and Services Tax (GST) Council took place on Friday after the Coronavirus crisis. Several decisions were taken at the meeting to provide relief to the public.

After the meeting, Finance Minister Nirmala Sitharaman said that the council has decided to hold a meeting again in July to discuss compensation cess with a single agenda. He said that this special meeting will be held to consider the compensation needs of the states. The Finance Minister said that if the states had to pay compensation, it would become a debt in one way or the other. He questioned how and who would repay it. The meeting will be held only after seeking answers to such questions

Under the law contained in it after the GST came into force in July 2017, states have been guaranteed full compensation for any revenue loss for the first five years. Compensation is the difference between actual revenue and estimated revenue. The estimated revenue base is a revenue growth of 14 percent per year for the states in the year 2015-16.

As per the GST Act, full compensation to states should be paid for five years by FY 2022 only through the indemnity fund which receives funds through GST indemnity cess on certain items. However, there is not enough collection since August 2019 and states have also been delayed in getting GST compensation. Now the Center is considering setting up a mechanism in the GST Council for compensation. The situation on GST revenue has worsened in the month of April. Many states have suffered from 80 to 90 percent reduction in average monthly collections during this year.

The Delhi government has said that its GST collection may fall to just Rs 300 crore in April this year, compared to a collection of Rs 3,500 crore in April last year. Apart from this, other states like Tamil Nadu, Assam, West Bengal and Andhra Pradesh have also witnessed severe revenue decline due to lack of economic activity during the nationwide bandh implemented due to Kovid-19. This problem continued in May. Sources in the government said that the monthly compensation requirement for the states is estimated to be Rs 20,250 crore in 2020-21. Even in FY 2021, the monthly cess may be Rs 7,000-8,000 crore or less.

This post was published on June 12, 2020 11:13 pm

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