Once GST compensation regime ends, Delhi, Punjab among states to feel pinch

NEW DELHI:  Punjab, Delhi, Himachal Pradesh, Goa, Uttarakhand and Puducherry will be fiscally most impacted states once the GST compensation regime gets over. The RBI in its latest report on state finances said the share of GST compensation in tax revenue of these states has exceeded 10% on average.

The central bank says going forward, in the absence of GST compensation, these states need to augment their revenue by increasing compliance, plugging leakages and widening tax bases. During the five-year transition period (July 2017 to June 2022), the top five compensation-receiving states were Maharashtra, Karnataka, Gujarat, Tamil Nadu and Punjab. GST compensation to states ended on June 30, 2022. Though, the compensation cess is continue to be levied till March 2026 to pay up for money borrowed to fill the compensation gap during 2020-21 and 2021-22.

When GST was implemented, the Centre guaranteed states a 14% annual increment in GST revenue for the first five years. Any shortfall from the target had to be compensated via GST compensation cess. As per RBI, 10 states are expected to fall short of the 14% GST growth target as per their 2022-23 estimates. These states include Gujarat, Maharashtra, Karnataka, Tamil Nadu, Haryana, Punjab, Himachal Pradesh, Uttarakhand, J&K and Delhi.

The report says north-eastern states have been the biggest beneficiaries in the GST regime, recording a compounded annual GST revenue growth of 27.5% since implementation as against 14.8% for all states.