Centre releases 86,912 crore to clear entire GST compensation to states due till May 31

The central government said on Tuesday that it has released an amount of Rs 86,912 crore to cover the whole amount of GST compensation due to states until May 31, 2022. This decision was made to assist states in managing their resources and ensuring that their programmes, particularly capital investment, are carried out successfully over the financial year, according to a statement from the Ministry of Finance.

"This decision has been taken despite the fact that only about Rs 25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of cess," the ministry added.

With this release of Rs 86,912 crore, the compensation to states till May 2022 gets fully paid and only compensation for June 2022 would remain, the ministry added.

Goods and Services Tax (GST) was introduced in the country w.e.f. 1st July, 2017 and states were assured for compensation for loss of any revenue arising on account of implementation of GST as per the provisions of the GST (Compensation to States) Act, 2017 for a period of five years. For providing compensation to states, cess is being levied on certain goods and the amount of cess collected is being credited to Compensation Fund. Compensation to states is being paid out of the Compensation Fund w.e.f. 1st July, 2017, the finance ministry further stated.

The Compensation Fund released bi-monthly GST compensation to states on time for the 2017-18 and 2018-19 fiscal years. COVID-19, the government added, increased the gap between protected revenue and actual revenue receipt, including a reduction in cess collection, because the states' protected revenue has been growing at a 14 percent compounded growth rate while the cess collection has not increased in the same proportion.

To help states overcome the resource gap created by the delayed payment of compensation, the Centre borrowed and released Rs.1.1 lakh crore in 2020-21 and Rs.1.59 lakh crore in 2021-22 as a back-to-back loan to cover a portion of the cess collection shortfall. The aforementioned conclusion has been agreed upon by all of the states. In addition, the Centre has started releasing GST compensation from the Fund on a regular basis to cover the shortfall.

With the concerted efforts by centre and states, gross monthly GST collection, including cess, has been showing a remarkable progress, the ministry added.