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Centre would honour full GST compensation owed to states: Report

Date: 08-09-2020
Subject: Centre would honour full GST compensation owed to states: Report
The Union government will "honour" the entire Goods and Services Tax (GST) compensation amount due to states, part of which (around Rs 97,000 crore) will be paid out immediately, according to a report by Mint.

The report quoted an official saying that states would receive the remaining amount over a deferred period to be decided by the GST Council.

The government's position had also been clarified at a meeting of states' finance secretaries, held last week, the official said.

This comes after the GST Council meeting last month where the Centre placed before states two options of borrowing from the market to meet GST revenue shortfall, which was pegged at Rs 2.3 lakh crore. States were then given a week's time to decide.

Finance Minister Nirmala Sitharaman had said under the first option, the Centre in consultation with the Reserve Bank of India (RBI) will provide a special window to states to borrow Rs 97,000 crore at a reasonable rate of interest and this money can then be repaid after five years from the collection of cess.

The other option was that states could borrow entire GST compensation gap of Rs 2.35 lakh crore in FY21 in consultation with the RBI.

However, many states especially the non-BJP ruled ones, termed the Centre's options "unacceptable" and rejected them.

According to the GST (Compensation to States) Act, the Centre is expected to pay compensation to states for the states' loss of revenues because of subsuming of taxes into the GST. However, due to a slowdown in the Indian economy and the COVID-19 pandemic to delayed payments to states.

The outbreak of COVID-19 and the nationwide lockdown imposed to tackle it brought economic activities to a standstill. This has exacerbated the compensation issue so much so that the Centre now is not in a position to compensate states if the current method of calculation has to be followed.


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