GST compensation regime: Several Oppn-ruled states search extension

With the Goods and Services Tax (GST) Council discussing to not prolong the compensation mechanism for states past the legally mandated five-year interval ending in June 2022, a number of state Finance Ministers have raised considerations and demanded an extension of it.
States equivalent to Kerala, Tamil Nadu and West Bengal are learnt to have demanded an extension of the compensation mechanism within the forty fifth Council assembly, which was held in Lucknow on Friday.Finance Minister Okay N Balagopal on Saturday mentioned he has requested for an extension of the GST compensation regime, stating that the state is already grappling with a major income shortfall. In case the GST compensation regime ends subsequent 12 months, the state will face additional income shortfall, Balagopal mentioned.

In his speech on the assembly, Tamil Nadu Finance Minister P Thiaga Rajan demanded the continuation of the compensation mechanism, and deferment of a choice on this subject. “While we are broadly, and firmly in favour of the continuation of the compensation mechanism, we are concerned by many of the details,” he mentioned. Thiaga Rajan mentioned all of the Council Members would require a while to analyse and assess the options and penalties of the choices introduced through the forty fifth assembly, and therefore, count on that any choice on the way in which ahead might be deferred to the forty sixth assembly no less than. “To be doubly sure, we formally place a request that no final decision be made on this most important issue without the benefit of the time needed to fully assess the options,” Thiaga Rajan had mentioned.

Union Finance Minister Nirmala Sitharaman on Friday had mentioned that the regime of paying compensation to states for income shortfall ensuing from GST implementation will finish in June subsequent 12 months and that the compensation cess, levied on luxurious and demerit items, will proceed to be collected until March 2026 solely to repay the borrowings made in 2020-21 and 2021-22 to compensate states for GST income loss.
“On the issue of compensation scenario, a presentation was made to the Council wherein it was brought out that the revenue collections from Compensation Cess in the period beyond June 2022 till April 2026 would be exhausted in repayment of borrowings and debt servicing made to bridge the gap in 2020-21 and 2021-22. In this context various options, as have been recommended by various committees/forums were presented,” an official assertion after the assembly mentioned. Minister of State for Urban Development and Municipal Affairs Chandrima Bhattacharya on Friday had mentioned that the state has demanded an extension of the compensation mechanism by 5 years. Delhi Deputy Chief Minister Manish Sisodia had mentioned the matter of compensation cess can be referred to a Group of Ministers (GoM).

States had been assured compensation below GST for the income hole between precise collections and the protected quantity based mostly on a 14 per cent compounded charge from the bottom 12 months 2015-16 for 5 years after the GST rollout, till June 2022. Last 12 months, the federal government had determined to borrow to fulfill the compensation cess deficit by back-to-back loans to states. In FY 2020-21, an quantity of Rs 1.10 lakh crore was launched to states below the back-to-back mortgage association.