Past cess surplus to halve states’ GST deficit in FY20

Fine-tuning GST: Steps are being taken to improve the compliance eco-system

Of the Rs 47,271 crore ploughed back from CFI, Rs 41,624 crore has already been distributed to states. The balance will likely be disbursed by March-end.  (Representational Image)

The Centre will use about Rs 28,000 crore of the Rs 47,271 crore absorbed by the Consolidated Fund of India in FY18-FY19 period as ‘surplus’ revenue from the GST compensation cess to reduce the state governments’ GST revenue shortfall in FY20. Even after this, the states’ GST revenue (SGST) in FY20 will be some Rs 28,000 crore short of the level they would have achieved under the 14 per cent ‘guaranteed’ annual growth formula.

Some Rs 20,000 crore of the surplus that merged with the CFI was used to bridge states’ shortfall in the final months of FY19.

Given the wide gap between the GST compensation fund and the funds required to compensate the states’ GST revenue shortfall, there has been considerable friction between the Centre and state governments in recent months. While states wanted the Centre to meet its ‘constitutional obligation’, the Centre remained ambivalent on how the issue would be tackled. Clarity on the Centre’s stand emerged when, in her Budget speech, Finance Minister Nirmala Sitharaman said, “It is decided to transfer to the GST compensation fund balances due out of collection of the years (2017-18 and 2018-19), in two instalments. Hereinafter, transfers to the fund would be limited only to collection by way of GST compensation cess.”

Some states are threatening to move the Supreme Court against the Centre’s decision. Kerala finance minister Thomas Isaac said the state government would approach the apex court under Article 131 to secure the pending GST compensation from the Centre. West Bengal finance minister Amit Mitra had said that it was for the Central government to devise a mechanism for payment of compensation to states under GST, if the fund set up for the purpose ran dry, given the silence of the relevant law on an alternative mechanism.

Of the Rs 47,271 crore ploughed back from CFI, Rs 41,624 crore has already been distributed to states. The balance will likely be disbursed by March-end.

The guaranteed level of SGST revenue in the current fiscal is Rs 6.70 lakh crore. The Centre’s Budgeted GST revenue (CGST, compensation cess), according to the revised estimate, is Rs 6.12 lakh crore, as against the original estimate (BE) of Rs 6.63 lakh crore.

The gross GST collections averaged at Rs 1.02 lakh crore/month in the April-January period. The collections fell woefully short of estimates in earlier months, but these have picked up in December-January. It is expected that with the aggressive drive to boost revenue with restrictions on undue input tax credit claims and improved compliance, the collections would be robust enough in February-March period for the Centre to meet the revised estimate.