GST compensation to states compromised due to lower GST revenue this financial year. Subsequently, after prolonged postponement, several states threatened to take the matter to the supreme court. Following that, Finance Minister Nirmala Sitharaman promised to honor the GST revenue compensation and assured the settlement at the earliest.
Joint Statement Issued Against ill-structured GST Compensation
The center promises compensation to the state for maintaining a constant 14% annual revenue growth in spite of any collateral damages. The GST entails over 60% of the tax revenues of states, thereby the compensation plays a key role in fiscal issues of the states. Moreover, the GST compensation act was an important reason for the states part taking in GST. The ill-structured GST rates led to GST compensation delay for states including Kerala, West Bengal, Delhi, Rajasthan, and Punjab.
Delay in Reimbursement
The above mentioned states have not received their shares of compensation for August, September, October, and November 2019. According to the recent report, the center owes Kerala Rs 1,600 crore, Rajasthan Rs 4,400 crore, Punjab Rs 2,100 crore, Delhi Rs 2,355 crore, and West Bengal Rs 1,500 crore.
As per the government’s statement, the major setback was due to inadequate cess collection. However, Manish Sisodia, Delhi Deputy Chief Minister opposed that cess collection of Rs 50,000 crore not inadequate. Additionally, he suspected and blamed the center of consciously withholding the GST compensation.
Alignments to Overcome the Issue
Government set to finalise on GST rates restructuring. For this center invited states for their inputs on GST slabs reviewing. Further, they discussed ideas to boost GST revenues that aids in the fastening of the compensation process. In addition, government set to increase GST on cigarettes and aerated drinks. Accordingly, cess on few products like several finished materials set to increase. However, this isn’t preferable as certain finished luxury items such as automobile industry are already struggling under current economic conditions would be severely affected.