In a bid to provide further relief to states amid the coronavirus outbreak, the finance ministry has released Rs 36,400 crore to states as compensation for their revenue loss in the goods and services tax (GST) regime for the period from December, 2019 to February, 2020.
With this the Centre has released its entire GST compensation due to states for financial year 2019-20 and also given extra compensation for February that is accounted for in the current fiscal FY21.
The release of compensation to states comes at a time when governments are facing sharp drop in GST collections in the months of April and May due to the lockdown and its impact on muting the business activities. Some states have reported that their GST collection for April would drop by as much as 85-90 per cent.
"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 Rs 36,400 crore to the states/UTs with legislature for the period from December, 2019 t o February, 2020 today on 4th June, 2020," a finance ministry statement said.
The GST compensation of Rs 1,15,096 crore for period April-November, 2019 had already been released by the Centre in phases.
GST compensation is released at the end of every two months' period. So, for FY20, dues are actually paid only upto January with compensation for the February-March period getting settled in next fiscal.
After the Goods and Services Tax (GST) regime was put in place, the Centre assured the states, through legislation, that the revenue shortfall will be compensated fully for first five years. 2015-16 was assumed to be the base year for calculating the compensation amount for a financial year. The growth rate of revenue for a state during the five-year period is assumed at 14 per cent per annum. Any shortfall in this growth number is to be compensated by the Centre.
For the Centre, payment of GST compensation dues would further strain its resources that is already impacted with less than encouraging overall tax collections. With economic growth now projected to slump and pressure on it to come out with more economic packages to take the country out of a recession owing to Covid-19, the Centre is in a bind on how to manage the needs.