GST compensation dues for states could double to Rs 70,000 crore, says ICRA report

New Delhi, Dec 20 (KNN) There will be more financial burden on centre as the GST compensation payment of nine large states, including Gujarat, Maharashtra and West Bengal, is expected to double to Rs 60,000-70,000 crore in 2019-20, says ICRA report.

''The compensation for the shortfall in goods and services tax (GST) collection may rise due to fall in growth of state GST (SGST) revenues amid the economic slowdown. This would result in a significant rise in the GST compensation grants required by the states from the Centre, posing a key revenue risk in the current fiscal,'' ICRA, said in a report.

The agency further speculated that the requirement for all states could be much higher. Karnataka, Kerala, Tamil Nadu, Gujarat, Maharashtra, Haryana, Punjab, Rajasthan, and West Bengal are the nine states.

According to ICRA, the timing of release of such grants by the Centre to these states would critically affect their cash flows.

"The central tax devolution (CTD) to these states in 2019-20 could be Rs 595-770 billion (Rs 59,500-77,000 crore) lower than what the government has budgeted, which has emerged as a key revenue risk for the states in this fiscal," ICRA said in the report.

"The CTD to the states in FY2019 was presumably based on the GoI's FY2019 Revised Estimates (RE) of gross tax revenues of Rs 22.5 trillion. However, the provisional data for FY2019 had pegged the GoI's gross tax revenues at Rs 20.8 trillion, Rs 1.7 trillion lower than the RE for that year," it added.

Under GST law, states were guaranteed to be paid for any loss of revenue in the first five years of GST implementation, which came into force from July 1, 2017. As per the GST (Compensation to States) Act, 2017, the compensation is calculated based on a 14 per cent annual growth rate on the base year (FY2016) revenues subsumed into the GST.

During April-November 2019, the GST collections rose merely by 3.7 per cent due to subdued economic growth and reductions in GST rates.

The report also expects the central government's actual gross tax revenues to trail the FY20 revised budget estimates (RBE) of Rs 24.6 lakh crore by a considerable Rs 3.0-3.5 lakh crore.

In last month, after five non-BJP ruled States had raised concerns over delay in payment of GST compensation by the Centre, the same isssue was brought to the Parliament.

Members of Parliament from Punjab and West Bengal had raised the issue of Centre not releasing the State’s share of compensation under the Goods and Service Tax (GST) in Rajya Sabha citing that it leading to a severe financial crisis like delay in release of salary and pension.

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