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

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

The GST council meeting is scheduled to be held on Thursday to discuss the compensation to be given to the states for any loss of revenue that they incur on because of GST.

This compensation is supposed to be paid on a bi-monthly basis. But these payments have been delayed by many months due to paucity of funds (pending since April).

The GST compensation is said to be around Rs 3 lakh crore this year and there is estimated to be a shortfall of Rs 2.35 lakh crore.

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

The centre is expected 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.

This was done 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 in the 41st meeting, it was indicated that the strain on the state finances is likely to continue in the near term.

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