Economy News

GST Council Consensus Fails on Compensation issue – What is the Problem?

The COVID-19 pandemic has wreaked havoc on many things. Most importantly, on the finances of the different states in India.

The GST council schedules the meeting for Thursday. They have to discuss with the states about compensation for any loss of revenue that they incur because of GST.

This compensation, they have to pay on a bi-monthly basis. There was a delay in many months for the payments due to a paucity of funds (pending since April).

The GST compensation was around Rs 3 lakh crore this year and there was an estimated shortfall of Rs 2.35 lakh crore.

The GST collections have impacted heavily not only because of the pandemic and the resulting lockdown but also by last year’s economic slowdown.

The center expects to compensate the states because of the GST (Compensation to States) Act 2017, which guarantees all the states an annual growth rate of 14% in their GST revenue in the period of July 2017 till June 2022.

They did this because of the GST implementation in 2017, which changed the principle of indirect taxation of multiple gods and services from being origin-based to being destination-based.

To add to this is the fact that the 41st meeting, indicates that the strain on the state finances. This is likely to continue in the near term.


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