Letter to States flags falling collections

The Centre has written to all the States voicing concern that due to the lower Goods and Services Tax (GST) collections, the compensation cess might not be enough to pay for losses arising out of the tax system.

The communication comes at a time when several States, including Rajasthan, Kerala, Delhi, Punjab and West Bengal, have publicly urged the Centre to transfer pending compensation payments as they have not received the dues for several months.

The government of Punjab has even said it may take the matter to the Supreme Court if the Centre does not release the dues.

The issue will be discussed in detail at the next GST Council meeting, scheduled for the second fortnight of December.

“Among other issues, the GST revenue position shall be discussed in detail at this meeting,” the Centre’s letter to the States, reviewed by The Hindu, said.

“This discussion is quite critical as lower GST and compensation cess collections have been a major concern in the last few months.”

“The compensation requirements have increased significantly and are unlikely to be met from the compensation cess being collected,” the letter added.

This situation assumes significance because it was the promise of compensation to the States for losses arising out of GST implementation that convinced a large number of reluctant States to sign on to the new indirect tax regime. The Centre had promised compensation for any shortfall in tax revenue due to GST implementation for a period of five years.

In the letter, the Centre also asked the States to submit their suggestions by December 6 on augmenting GST collections. They were specifically asked to look into ways to review the items currently exempted from GST, review the tax rates and compensation cess rates on various items, and on improving compliance measures.

These suggestions will be placed before the Committee of Officers from the States and Centre that has been set up to suggest measures to increase collections.

The government had budgeted for ₹6,63,343 crore in GST collections for the current financial year 2019-20, out of which it has collected only about 50% in the first eight months. It had targeted ₹1,09,343 crore of compensation cess collections, of which it has so far collected ₹64,528 crore.