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Dozen states seek GST compensation extension by five years, ministers say

According to top state ministers, dozen states have asked that the Goods and Service Tax (GST) compensation be prolonged by five years.

June 29, 2022 / 10:18 PM IST
Representative image

Representative image

Nearly a dozen states have demanded that the Goods and Service Tax (GST) compensation be extended by five years, top ministers said on June 29.As many as 16 states spoke on GST compensation in today's GST Council meeting, Finance Minister Nirmala Sitharaman said. “Of this there were 3-4 states that said that they have to stand on their own and not depend on compensation," Sitharaman said.

The two-day GST Council meeting in Chandigarh ended on June 29, with the council giving a Group of Ministers more time on rate rationalization.

Several opposition-ruled states, including Rajasthan, Tamil Nadu, Chhattisgarh, West Bengal and Kerala, had on the record sought an extension of GST compensation to states beyond the June 30 deadline.

Tamil Nadu Finance Minister Palanivel Thiaga Rajan said that every state has asked for an extension to compensation, including those ruled by the Bharatiya Janata Party.The Centre did not say anything in response to the states’ request, Rajasthan finance minister Shanti Dhariwal said while speaking on the sidelines of the GST Council meeting in Chandigarh.

At the time of introduction of GST in 2017, the constitutional amendment provided for compensation to states for five years for revenue lost. The GST Compensation to States Act provided for release of compensation based on 14 percent year-on-year growth.


While Rs 3 lakh crore compensation was released to the states in the first three years of GST implementation, the Centre had to resort to market borrowing to bridge the GST compensation shortfall as revenue collections were hit by the coronavirus pandemic and the ensuing economic disruption. The Centre borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 and passed this on to states.

The GST compensation cess, levied on sin and luxury goods like tobacco, coal and cars, has been extended until March 2026 to repay GST related borrowings. States' finances are expected to come under further stress as the compensation ends.Statements were made on whether compensation can be continued if not for five years, for a few years, the Press Information Bureau said on Twitter.

The GST Council is due to next meet in the first week of August.
Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. Contact:
first published: Jun 29, 2022 03:55 pm
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