Delays in GST compensation

While the Center decided on Thursday to attribute much of the blame for the delays in GST compensation payments to the downturn inflicted by the pandemic, the delays preceded the Covid-19 shock by nearly a year, when payments were due for August -September 2019 have been delayed. Since then, all subsequent payments have experienced cascading delays.

The economic downturn, which has lasted for almost three years, began to affect the collection of GST revenue in August of last year.
Sequentially, the GDP growth rate increased from 5.2% in April-June 2019 to 4.4% in July-September and to 4.1% in October-December, and to 3.1% in January-March .
Reflecting this, GST’s gross revenue slowed in August (sales revenue in July) to Rs 98,203 crore, which then recorded a 2.7% year-on-year contraction in September 2019 to Rs 91,917 crore and 5.3 % in October at Rs 95,380 crore.
GST collections recovered again in November, partly on vacation balances and partly on anti-avoidance measures and a provision introduced to limit the input tax credit.
A cap on the input tax credit at 20% of eligible business credit, effective October, helped increase collections.
This limit, which only affected buyers whose suppliers had not uploaded invoices, was lowered to 10% at the GST Council meeting on December 18.
The Center first acknowledged problems with the payment of compensation at the 37th GST Council meeting held in Goa in September 2019, when it stated that the amount of termination available in the fund for compensation at the end of February “will not be sufficient for the payment of compensation for loss of income until the fortnightly period from December to January”.
Then, on November 27, 2019, the GST Council wrote to states that the GST and the collection of countervailing taxes in previous months had become a “source of concern” and was “unlikely to be respected. compensation requirements “.
By then, the GST compensation payments had started to fall behind, and many state finance ministers began to worry about the need to repeatedly claim their share of the revenue.
The GST compensation payment of Rs 35,298 crore for August-September 2019, and due in October, was paid in December. The Center released another crore of Rs 34.053 in two installments in February 2020 and April 2020 as compensation for October-November.
Then in June of this year, the Center released Rs 36,400 crore as GST compensation for December-February, after which the balance of Rs 13,806 crore for March was released in July, bringing full payment of compensation for Rs 1.65 lakh crore.
Under the State Compensation Act, states are guaranteed income protection equivalent to a compound annual growth rate of 14% of base-year 2015-2016 income.
The law establishes bi monthly compensation payments to states for the discrepancy in income from tax collections for sin and luxury items.
Following increasing delays and the Centre’s admission that ‘compensation requirements are unlikely to be met’, at least five opposition-led states / UTs (Kerala, West Bengal, Delhi, Rajasthan and Punjab) issued a joint statement on November 20, raising concerns about it.
On December 4, the finance ministers of seven opposition-governed states and Union territories (Punjab, Delhi, Pondicherry, Kerala, Madhya Pradesh, Rajasthan and Chhattisgarh) made a strong representation to the finance minister of the ‘Union, Nirmala Sitharaman, demanding pending compensation, and some said it was a shame to keep asking for the money they were owed and Kerala warned it could even go to the Supreme Court.