Centre releases ₹35,000 crore GST compensation to states

NEW DELHI : The central government on Monday released ₹35,298 crore to compensate states for revenue losses for two months, August and September, addressing fears that it would not honour the Goods and Services Tax regime’s federal compact, although some states said they would still raise the issue at the coming meeting of the GST Council, and also demanded that the compensation for October and November be released.

The move comes two days ahead of the meeting of the GST Council.

In a tweet, the Central Board of Indirect Taxes and Customs (CBIC) confirmed the amount, but did not disclose the period for which the compensation was paid.

A finance ministry official, who asked not to be named, confirmed that the compensation for two months, August and September, has been released. The Centre still has to pay compensation for October and November.

The official said the delay in payment was because the compensation cess fund was exhausted.

Compensation cess is levied on luxury items and sin goods such as tobacco products, aerated water, automobiles, and coal. The cess is levied to compensate states for their revenue losses due to the transition from a decentralised value-added tax (VAT) regime to the unified GST regime.

The finance minister of a state ruled by a non-bjp party said on condition of anonymity that the release of compensation for two months wasn’t good enough. “We want compensation to be paid for the four months – August, September, October and November -- as states are facing an acute funds crunch, which is also because of the economic slowdown. It is not an act of charity by the Centre. States have to be compensated as per the law and the Centre must honour its commitment in letter and spirit.”

The finance minister of another non-bjp-ruled state said on condition of anonymity that “the inordinate delay in paying compensation should be raised in the GST Council meeting on Wednesday”.

The Goods and Services Tax (Compensation to States) Act, 2017 provides for the levy of compensation cess on certain luxury items and sin goods to compensate states and Union territories for the loss of revenue due to shifting from a new indirect tax regime to GST from July 2017 for five years. This period can be increased by the GST Council.