In the current financial year, the Centre released nearly Rs 1 lakh crore compensation to the states till September.
Any residual amount left in the Compensation Fund after five year compensation period shall be shared equally between the Centre and the states.
On March 13, Minister of State for Finance Pankaj Chaudhary had tabled the second batch of supplementary demands for grants in the House amounting to a total of Rs 2,70,508.89 crore.
According to the third batch of supplementary demands for grants tabled in the Lok Sabha, approval is being sought for gross additional expenditure of over Rs 1.58 lakh crore.
The Centre has cleared the entire GST compensation payable till date by releasing Rs 86,912 crore to states, the finance ministry said on Tuesday. Of this, Rs 25,000 crore is released from the GST compensation fund and the balance Rs 61,912 crore is being released by the Centre from its own resources pending collection of cess. Of the total compensation released, Rs 17,973 crore is towards April and May dues, Rs 21,322 crore towards February-March dues and Rs 47,617 crore is the balance of compensation payable up to January 2022.
The question on who should borrow from the market and whether the borrowing will be under two buckets should be decided by the GST Council, and not by the Centre. If there is no consensus, there has to be a vote, says A K Bhattacharya.
Even with the Rs 20,000 crore distributed among states, it will still be a fraction of what they have been demanding in financial support and clearance of pending dues.
The compensation would be met through levy of a cess called 'GST Compensation Cess' on luxury items and sin goods like tobacco, for the first five years.
Finance ministry sources have countered CAG audit finding of central government wrongly retaining Rs 47,272 crore of GST compensation cess meant for states, saying temporary retention cannot be termed as diversion.
Congress preparing a dissent note on the issue
A road map could be laid out for a gradual reduction in the tax rates from the current incidence of about 62-94 per cent without causing a major blow to the revenues of the Centre and the states. The opportunity arising out of higher GST collections should not be squandered, says A K Bhattacharya.
The CAG has found that the Union government in the very first two years of the GST implementation wrongly retained Rs 47,272 crore of GST compensation cess that was meant to be used specifically to compensate states for loss of revenue.
The 41st meeting of the GST Council, to be held via video conferencing, has just one agenda for discussion -- making up for shortfall in states' revenues, sources said.
While Congress and the states ruled by non-NDA parties pushed for the Centre meeting its statutory obligation of covering the deficit, the Union government cited a legal opinion to say it had no such obligation if there was a shortfall in tax collections. The Centre as well as BJP-JD-U-ruled Bihar were of the opinion that the states should borrow to make up for the shortfall in the tax revenues that have been compounded by the COVID-19 crisis, sources said.
While Union Finance Minister Nirmala Sitharaman reiterated her stand that the central government was committed to cooperative federalism, finance ministers of non-BJP ruled states such as Punjab and Kerala said she refused to give a categorical assurance that states will be paid compensation on time.
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