Sitharaman on Wednesday said the Centre was duty bound to safeguard the interest of states

Union Finance Minister Nirmala Sitharaman on Wednesday assured states that the goods and services tax (GST) compensation due to them for August and September will be released soon. She, however, did not specify a timeline.

Finance ministers (FMs) of Punjab, Kerala, Delhi, Rajasthan, Chhattisgarh, and Madhya Pradesh had met Sitharaman on Wednesday and urged that funds due for four months since August be released as soon as possible.

The issue could become a major one at the GST Council meeting on December 17-18 in New Delhi.

Punjab FM Manpreet Singh Badal said Sitharaman assured them the money will be released soon. “Compensation for October and November is also due,” he added.

The August and September compensation dues for Rajasthan are Rs 4,400 crore, for Punjab it is Rs 2,100 crore, for Delhi it is Rs 2,355 crore, for Kerala it is Rs 1,600 crore, and for West Bengal it is Rs 1,500 crore.

Delhi’s Deputy Chief Minister Manish Sisodia said Sitharaman did not specify the reason why the compensation was being held up. “The Centre owes Rs 3,600 crore to Delhi for August, September, and October,” he added.

Cess collections under the GST to compensate states for revenue loss have fallen short of requirements in the current fiscal year on account of slowdown in demand. Under the law, if the states’ GST revenue does not grow by at least 14 per cent, the Centre pays them the difference after every two months.

Madhya Pradesh (MP) Commercial Tax Minister Brajendra Singh Rathore said the Centre owes the state Rs 3,000 crore for August to September.

The state has fared the worst in GST collection in 2019-20 (FY20), raking in 30 per cent of the annual target. Kerala, Punjab, and Tamil Nadu have collected about 33 per cent, shows the data on the Comptroller and Auditor General of India website.

In a letter to the state, the Centre has acknowledged that the compensation requirements of states will “unlikely” be met from the cess collected and hence has sought suggestions for revenue augmentation, including review of compensation cess and the GST rates.

Sitharaman on Wednesday said the Centre was duty bound to safeguard the interest of states.

This year, in the first six months, while the Centre collected compensation cess amounting to just above Rs 46,000 crore, the compensation actually released to states has run into Rs 66,000 crore.

On the collection side, while the fall in auto sales reduced the collection, the overall crunch in states’ GST revenue raised the need for compensation to be released.

The letter sent to the state GST commissioners, reviewed by Business Standard, said that “lower GST and compensation cess collections have been a matter of concern in the past few months… the compensation requirements have increased significantly and are unlikely to be met from the compensation cess being collected”.

It further sought suggestions with respect to compliance and rates to help augment revenues. This includes review of items currently on the exemption list. The exemption list covers essential commodities like grains, vegetables, fruit, etc.

States are demanding an extension of the compensation period by another three years, beyond the stipulated 2021-22, propelled by their under-confidence about economic revival and buoyancy in revenue collection. This will lock their annual revenue growth at a minimum of 14 per cent, irrespective of the actual collections till 2024-25.