COVID-19: Centre To Release Another Rs 34,000 Crore Compensation To States Soon

In a bid to provide further relief to states amid the coronavirus outbreak, the finance ministry is planning to soon release another about Rs 34,000 crore to states as compensation for their revenue loss in the goods and services tax (GST) regime. States, so far, have been paid pending dues till November and the remaining will be cleared in phases soon, sources said. The finance ministry cleared about Rs 34,000 crore pending GST compensation for October and November in two tranches.

The first tranche of Rs 19,950 crore was released on February 17, while the remaining amount of Rs 14,103 crore was distributed to states and Union territories on Tuesday, sources added. In all, Rs 34,053 crore were released at a time when states are facing liquidity crunch due to the nationwide lockdown imposed to contain spread of coronavirus.

According to sources, the government has released close to Rs 1.35 lakh crore to states and union territories towards GST compensation cess. Under GST law, states were guaranteed to be paid for any loss of revenue in the first five years of the GST implementation, which came into force from July 1, 2017.

The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16. Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The Centre has, so far, released about Rs 2.45 lakh crore as GST compensation to states since the implementation of GST on July 1, 2017. During July 2017-March 2018, Rs 48,785 crore was released, while between April 2018-March 2019, Rs 81,141 crore was paid to states.

For April-May and June-July last year, Rs 17,789 crore and Rs 27,956 crore were released. Further, Rs 35,298 crore was paid to states as compensation for August-September and Rs 34,053 crore for October-November 2019. GST collections in March slipped below the psychological Rs 1-lakh crore mark for the first time in four months to Rs 97,597 crore as the COVID-19 lockdown that shut most businesses compounded tax collections in an already sluggish economy.

GST mop-up in March recorded a 8.4 per cent decline over March 2019 collection of Rs 1.06 lakh crore. The collections were lower on account of dip in revenues from domestic transactions as well as imports. In the last four months -- November 2019-February 2020 -- GST collection surpassed the Rs 1-lakh crore mark. In February, mop-up was Rs 1.05 lakh crore, January (Rs 1.10 lakh crore), December (Rs 1.03 lakh crore) and November (Rs 1.03 lakh crore).