Out of Rs. 86,912 crores GST compensation dues, several chunks are coming from the union government’s own resources pending collection of cess. This decision of releasing mass GST compensation dues at once was taken to ensure and facilitate the proper managing of states' resources and to ensure that the expenditure on capital is turned out successfully during the financial year. However, some states are demanding that the compensation should be extended beyond June 2022.
This decision of releasing GST compensation dues at once is taken despite the fact that the centre has only about Rs. 25,000 crores left in the GST compensation fund and the balance is being released by the centre from its own resources.
The Goods and Services Tax (GST) Act was implemented in July 2017 with the aim to ensure the uniformity of taxes throughout the country. States were assured of the compensation for any loss of revenue arising out of the implementation of the Goods and Services Act according to the provisions of this Act for a period of five years.
For providing GST compensation to the states, a cess is being levied on certain goods and the amount collected from the cess is being credited to the compensation fund. GST revenue compensation is being paid out of the GST compensation fund from July 1, 2017.
Bi-monthly GST compensation for the states of the year 2017-2018 and 2018-2019 was released on time by the central government out of the GST compensation fund. As the state protected revenue has been growing at 14% of compounded growth, the cess collection did not increase in the same proportion.
The onset of the covid 19 pandemic has further increased the gap instead of bridging it. According to the statement given by the Finance Ministry, Covid 19 pandemic has further increased the gap between the protected and actual revenue including the reduction in the cess collection.