Centre to renegotiate GST sharing with states

Amid an ongoing economic slowdown and a dip GST collection, the Centre is finding it hard to compensate the states for fall in revenue. 
For representational purposes
For representational purposes

NEW DELHI: Amid an ongoing economic slowdown and a dip GST collection, the Centre is finding it hard to compensate the states for fall in revenue. Therefore, it is planning to re-negotiate the terms of compensation paid to the states, which was agreed upon while introducing the GST.

“The Centre’s divisible pool of taxes was fixed at 42 per cent as recommended by the 14th Finance Commission. However, in the present economic scenario, the growth has not been as projected. So, the terms need to be renegotiated. The matter is likely to be taken up soon,” an official from the Finance Ministry said.The terms of engagement for devolution of tax under GST were jointly agreed by the Centre and states and legislated as a constitutional amendment assuring states of a compensation by the Centre in case of shortfall on the basis of a assured growth in revenue by 14 per cent annually for a period of five years.

The total GST collection of the states/UTs for 2018-19 stood at `5,18,447 crore. As such the Centre had released `81,177 crore as compensation to states during that year.The government has transferred `27,955 crore to the states as compensation till July. As per its own estimates, another `40,000 crore should have been paid till September-end.

Delay in GST compensation, led to financial problems

More money will also be due by tomorrow when compensation for October and November will also fall due.The gross GST collection from April to November (Including CGST, SGST and IGST) stood at `8.05 lakh crore, which represents a shortfall of over `1 lakh crore. Last week, finance ministers of Delhi, Punjab, Puducherry and Madhya Pradesh, and representatives of Kerala, Rajasthan, Chhattisgarh and West Bengal met Finance Minister Nirmala Sitharaman and said the delay in GST compensation transfer has put them in an acute financial position.

Sitharaman had expressed difficulty overcompensating states. “During GST implementation, the tax assumption were not realistic as there was no available trend to forecast the GST revenue prejection for 14th Finance Commission. Now it will be easier to re-look at it as the trend is available with the 15th Finance Commission,” said the official, adding the government will initiate internal consultation before the budget and will engage with the 15th Finance Commission and states to rework the GST maths.

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