The Centre on Thursday released ₹36,400 crore to State governments as Goods and Services Tax (GST) compensation due for the period from December 2019 until February 2020.
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States have been urgently demanding that the pending compensation payments be released, especially at a time when the COVID-19 pandemic and lockdown have led to falling revenues.
“Taking stock of the current situation due to COVID-19 where State governments need to undertake expenditure while their resources are adversely hit, the Central government has released the GST compensation of ₹36,400 crore to the States/UTs with legislature for the period from December 2019 to February 2020 today [on Thursday],” said a Finance Ministry statement, noting that GST compensation worth ₹1,15,096 crore for the April-November period had been released earlier, completing payments for the 2019-20 financial year.
When the GST regime was first introduced in 2017, the law ensured that the Centre would pay States full revenue compensation for the first five years. Compensation is calculated using 2015-16 as the base year, assuming a 14% annual growth rate for a State’s revenue.
With GST revenues falling well below the compensation requirement, and collections expected to crash even further due to the lockdown, the Centre has delayed its payments to States, leading some State governments to threaten legal action. The GST Council is due to meet next week, and will consider whether to tax more items or hike tax rates in order to increase revenues.
