Lok Sabha Question No. 2781 (UNSTARRED), answered on 2023-08-07
Subject: Extension of GST Compensation
Ministry: FINANCE
Asked by: Arjunlal Meena, N.K. Premachandran, Sumalatha Ambareesh, Nalin Kumar Kateel, D.K. Suresh, D.K. Suresh, Pocha Brahmananda Reddy

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA UNSTARRED QUESTION NO-2781

TO BE ANSWERED ON MONDAY, AUGUST 7, 2023/ SRAVANA 16, 1945 (SAKA)

## EXTENSION OF GST COMPENSATION

## 2781.  SHRI ARJUN LAL MEENA:

SHRI N.K. PREMACHANDRAN:

SHRIMATI SUMALATHA AMBAREESH:

SHRI NALIN KUMAR KATEEL:

SHRI D.K. SURESH:

SHRI POCHA BRAHMANANDA REDDY:

Will the Minister of FINANCE be pleased to state:

- (a) the amount of GST compensation due pending currently;
- (b) whether GST compensation received by States forms a large part of their revenue;
- (c)  if  so,  whether  the  Government proposes to extend the time of Goods and Services Tax (GST)  compensation  for  five  years  and  to  release  amount  of  compensation  to  be  paid  to States, if so, the details thereof and if not, the reasons therefor;
- (d)  whether  the  Government/GST  Council  has  received  any  representation  from  State Governments including Karnataka and Kerala in this regard, if so, the details thereof and the action taken thereon;
- (e) whether the Government has taken note that many States are suffering losses due to the shortfall of GST compensation, if so, the details thereof;
- (f) whether the Government has made any estimate of the amount of losses suffered by the States due to the shortfall of GST compensation, if so, the details thereof for the last three years, State/year-wise; and
- (g) whether the Government has considered loss of revenue to States from GST due to Covid19, if so, the action taken by the Government to compensate the States for such loss?

## ANSWER

## THE MINISTER OF STATE IN MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

- (a)  to  (g):-  Government  of  India  has  already  released  the  entire  amount  of  provisionally admissible GST compensation to the States/UTs for loss of revenue arising on account of implementation of Goods and Services Tax for five years i.e.,  from  1st  July,2017  to  30th June,  2022.  Final  Compensation  arising  out  of  reconciliation  of  provisional  figures  with audited figures is released immediately on receipt of the AG's certificate and no amount is pending for release.

As per the provisions of section 7(2) of Goods and Services Tax (Compensation to States) Act,  2017,  enacted  by  Parliament,  the  compensation  payable  to  a  State  is  provisionally calculated and released at the end of every two months period, and is finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor General of India.

For  the  purpose  of  payment  of  GST  Compensation,  compensation  cess  is  levied  on  select items  and  credited  into  a  non-lapsable  Fund  known  as  GST  Compensation  Fund  and  all releases  of  compensation  to  States  are  done  only  out  of  Compensation  Fund.  While  the resources  from  compensation  cess  were  sufficient  to  cover  the  compensation  requirement, the  economic  impact  of  the  pandemic  led  to  requirement  of  higher  compensation  due  to lower GST collection while reducing collection of GST compensation cess.

The issue of shortfall of cess collection into Compensation Fund and GST compensation to States/UTs due to economic impact of the pandemic was deliberated in 41st, 42nd & 43rd GST council meetings. Consequent to that, Central Government decided to release assistance to States as back to back loan to meet the resource of the States/UTs due to shortfall in GST compensation. This arrangement was finalized after detailed deliberations with the States and all  States  have opted for this arrangement. ₹ 1.1 lakh crore for FY 2020-21 & ₹ 1.59 lakh crore for FY 2021-22 has been released to States/ UTs under this arrangement.

A  few  States  have  requested  for  extension  of  payment  of  GST  compensation  beyond transition period of five years. As per section 18 of the Constitution (One Hundred and First Amendment) Act, 2016, compensation to the States for loss of revenue arising on account of implementation of the goods and services tax is payable for a period of five years. During transition  period,  the  States'  revenue  is  protected  at  14%  per  annum  over  the  base  year revenue of 2015-16. Central Government is committed for payment of GST compensation to States/UTs for five years as per law enacted by the Parliament according to the Constitutional provision.

It is further submitted that the Government, on the recommendations of the GST Council, has been  taking  several  measures  to  increase  the  tax  base  and  improve  tax  compliance.  As  a result,  monthly  gross  GST  collection  has  shown  great  buoyancy  in  the  recent  years.  The monthly average gross GST collection for the FYs 2021-22 & 2022-23 have shown 30% and 22% year on year growth respectively.

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