After a delay of over two months, the government has said that it has released the pending Rs 35,298 crore GST compensation cess to states and union territories on Monday. The Central Board of Indirect Taxes and Customs announced the same on its Twitter page.
Several states, especially Kerala, West Bengal, Rajasthan, Punjab and Madhya Pradesh reached out to Finance Minister Nirmala Sitharaman urging her to release the pending dues since states were under severe financial stress.
The payments came two days ahead of the crucial GST council meeting where the issue of falling GST revenue is set to be discussed.
As per a Business Standard report, Kerala’s outstanding compensation amounts to Rs 1,600 crore, while Rajasthan is owed Rs 4,400 crore, Punjab Rs 2,100 crore, Delhi Rs 2,355 crore, and West Bengal Rs 1,500 crore.
GST comprises nearly 60% of the tax revenues of states and hence the compensation plays an important role in the finances of the state, which are already hurt amid the economic slowdown. In fact, it was the assurance of GST compensation that made states agree to join GST.
Owing to pending dues, some states were even considering legal action against the centre.
What is the GST compensation?
In November 2016, the Union government announced the draft GST compensation law as per which states would receive provisional compensation from the Centre for loss of revenue from implementation of GST every quarter. This is paid to the state governments on a bi-monthly basis.
The government said that the compensation would be met through levy of a cess called ‘GST Compensation Cess’ on luxury items and ‘sin goods’ like tobacco, for the first five years.
On December 12, the FM said in the Rajya Sabha that the total cess collected in 2017-18 was Rs 62,596 crore and of this, Rs 41,146 crore was released to states. The remaining Rs. 15,000 crore was put into the Cess Fund. In FY19, she said that Rs 95,081 crore was collected and Rs. 69,275 crore released to states, but cess accumulated in the Fund was zero.