Union FM in Lok Sabha: Few States Seek To Extend the Compensation Cess For Five More Years

The Union Finance Minister Nirmala Sitharaman told the Lok Sabha that a few states had asked to extend the compensation cess for five more years.

At the GST inception, the Center agreed to pay compensation to the states for revenue loss due to the implementation of the GST law. The Council decided the compensation cess duration was five years, ending on 30th June 2022.

The Union FM mentioned in the written reply that the Council, in its 42nd meeting, had recommended extending the Compensation cess beyond June 2022. This extension shall cover the shortfall and repay the back-to-back loan released to states to meet their revenue gap due to the short release of compensation. However, a final decision needs to be taken in this regard.

The Centre borrowed Rs 1.1 lakh crore in FY 2020-21 and Rs 1.59 lakh crore in FY 2021-22 as back-to-back loans to meet part of the shortfall in cess collection. In addition, the Centre released Rs 86,912 crore to states/UTs on 31st May 2022 and cleared the entire provisionally admissible GST compensation due till May 2022.

Centre tool this decision to assist the states in managing their resources and ensuring that their programs are carried out successfully during the financial year. This decision has been taken even though only about Rs 25,000 crore was available in the GST Compensation Fund and the Centre released the remaining Rs 62,000 crore from its own resources.

She mentioned that the GST revenues increased due to continuous reforms by the Centre and states. The average monthly GST collection during April-June’22 has been Rs 1.51 lakh crore against the average monthly collection of Rs 1.1 lakh crore in April-June’21, with a 37% increase.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@clear.in

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