Centre to cite tight revenue position

The GST Council at its meeting next week is likely to be a stormy affair with Opposition-ruled States aggressively pushing for continuation of compensation for revenue loss, while Centre will defend such a move citing a tight revenue position.
To meet the shortfall in the GST compensation fund, the Centre has borrowed and released to states `1.1 lakh crore in 2020-21 and `1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of the shortfall in cess collection.
In addition, the Centre has also been releasing regular GST compensation from fund to meet shortfall. "Last year, out of the compensation cess collection, the Centre has repaid `7,500 crore towards interest cost for borrowing and  `14,000 crore is to be paid this fiscal. From next fiscal, the repayment of principal amount will start, which will continue till March 2026," an official said. The 47th meeting of GST Council, chaired by Union Finance Minister and comprising state Finance Ministers, in Chandigarh scheduled on June 28-29 is likely to see discussion veer around compensation mechanism and revenue position of the Centre and states. 
As per estimates, some northeastern states do not require GST compensation. After 45th GST Council meeting in Lucknow, Union Finance Minister  Nirmala Sitharaman had said regime of paying compensation to states for  revenue shortfall, resulting from subsuming their taxes, such as VAT in uniform national tax GST will end in June next year. 
However, the compensation cess levied on luxury and demerit goods, will continue to be collected till March 2026 to repay the borrowings that were done in 2020-21 and 2021-22 to compensate states for GST revenue loss. Goods and Services Tax (GST) was introduced in country with effect on July 1, 2017, and states were assured of compensation for loss of any revenue arising on account of implementation of GST for five years. Though states' protected revenue has been growing at 14% compounded growth, the cess collection did not increase in same proportion. 
The pandemic hiked gap between projected revenue and actual revenue receipt, including a reduction in cess collection. To meet resource gap of  states due to short release of compensation, Centre has borrowed and released `1.1 lakh crore in 2020-21 and `1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of shortfall in cess collection. 

The Centre has released entire amount of GST compensation payable to states up to May 31, 2022.