30.01.2023 T.N. among top five States receiving GST compensation, says RBI study

Tamil Nadu was among the top five GST compensation receiving States during the five-year transition period from July 2017 to June 2022, according to a study by the Reserve Bank of India (RBI).

The Goods and Services Tax (GST) was introduced on July 1, 2017 and June 30, 2022 marked the end of the transition period during which the States were compensated for any loss in revenue due to the implementation of the new tax regime, calculated as the difference between the projected revenue based on a 14% annual growth with 2015-16 as the base year and the actual GST revenue, said the RBI’s report, ‘State Finances: A Study of Budgets of 2022-23’.

The compensation to the States was being met through the levy of a GST compensation cess on specified goods and services, the RBI annual publication said. The requirement for GST compensation varied widely across States, it noted.

According to the data shared in the report, Tamil Nadu received a GST compensation of about ₹40,000 crore during the transition period. This excludes the back-to-back loans extended to States in lieu of GST compensation. Tamil Nadu was the fourth highest compensation receiving State, after Maharashtra, Karnataka and Gujarat. Punjab stood fifth.

Owing to the impact of the COVID-19 pandemic, GST collections nosedived, and the corpus available in the GST Compensation Cess Fund was insufficient to meet the compensation demand from States, the report noted.

As a result, the Centre resorted to market borrowings of ₹1.10 lakh crore and ₹1.59 lakh crore in 2020-21 and 2021-22 respectively to provide back-to-back loans to States so as to meet the GST compensation shortfall.

However, both the principal and the interest on such borrowings were to be repaid by the Centre from the collections through the GST compensation cess, whose timeline had been extended to March 2026, it noted.

The study also noted that at least 10 States, including Tamil Nadu, Maharashtra, Gujarat, Karnataka and Uttarakhand, were expected to fall short of the expected 14% GST growth, as per the budget estimates for 2022-23.

Source: https://www.thehindu.com/news/national/tamil-nadu/tn-among-top-five-states-receiving-gst-compensation-says-rbi-study/article66447109.ece

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