Centre distributes Rs 86,912 crore to states and settles GST compensation debts

Centre has handed Rs 86,912 crore to the states, fully compensating them for the GST, despite only having roughly Rs 25,000 crore in the GST compensation pool.

The Central government has handed Rs 86,912 crore to state governments, the SGST (State Goods and Services Tax), fully compensating them for the Goods and Services Tax (GST). Despite only having roughly Rs 25,000 crore in the GST compensation pool, the Centre made the whole amount. The remaining funds were paid from the Centre’s own funds while the cess was being collected.

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KEY POINTS:

Compensation of Rs 47,617 crore was due up to January, Rs 21,322 crore was due for February-March, and Rs 17,973 crore was due for April-May, out of the Rs 86,912 crore released to states.
New Delhi is required by present laws to compensate states for any revenue lost as a result of the GST till June 30.
Following the implementation of the GST on July 1, 2017, the government expected yearly revenue growth of 14%.
To compensate states for lost revenue, a cess was imposed on a variety of luxury items and so-called sin goods to raise funds.
However, a faltering economy and the COVID-19 pandemic stifled cess collections, exacerbating the gap between what was owed and the compensation fund’s available funds.

To make up for the gap in GST compensation to states, New Delhi borrowed Rs 1.59 lakh crore from the market in FY22 and Rs 1.1 lakh crore in FY21 and passed the money on to the states. The compensation cess, which will be used to support debt obligations, will be in place until 2026.

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