GST compensation: State FMs seek early release of funds

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The finance ministers of some Opposition-ruled states have urged Union finance minister Nirmala Sitharaman to release GST compensation for August and September, saying the delay in payment has caused serious financial difficulties to state governments. The state governments have already started resorting to ways and means advances and overdrafts to meet the revenue shortfall, the finance ministers of Delhi, Kerala, West Bengal, Punjab and Rajasthan said in a statement issued after a meeting of the Empowered Committee of State FMs. The GST compensation accounts for around 60% of the tax revenues of the states.

“Many states are already facing deficits up to 50% of the total GST,” the ministers said, adding that large deficits could disrupt the activities of the states. The GST (Compensations to States) Act, 2017 provides for compensations to states for the loss of revenue on account of implementation of the GST. States are eligible to receive compensation till FY 2021-22.

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The delay in payment has shaken the confidence of the states, the statement said, adding that the GST compensation was an enabler in states agreeing to subsume their fiscal sovereignty into GST. The ministers appealed to the Union finance minister to ensure that the funds are transferred without further delay.

The Union government’s tax mop-up is expected to fall short by more than Rs 2 lakh crore in the current financial year. The Budget presented by finance minister Nirmala Sitharaman had forecast a gross tax mop-up of Rs 24.6 lakh crore, compared with the revised estimate of Rs 22.5 lakh crore in the previous year. This seems difficult in the face of the economic slowdown and a fall in GST collections this year. The central government’s fiscal problems have been accentuated by cut in corporate tax worth Rs 1.45 lakh crore announced by the government.

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