ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Revenue Shortfall and GST Compensation

An Assessment

The states that will suffer the maximum revenue impact if the expected goods and services tax collections do not improve in the coming years, are identified. The pre- and post-GST buoyancy of the states is compared to understand the possible outcome. The likely revenue requirement for servicing the accumulated special market borrowings of the union government is assessed.

In the 41st meeting of the Goods and Services Tax (GST) Council held on 27 August 2020, the demand for GST compensation by the states was projected to be `3 lakh crore in 2020–21. Given the projected GST compensation cess collection of `65,000 crore, the shortfall in GST compensation fund was expected to be `2.35 lakh crore in 2020–21. Out of the total projected shortfall of `2.35 lakh crore in the GST compensation fund, the shortfall arising out of the GST implementation was estimated to be `97,000 crore and the rest of the amount (that is, `1.38 lakh crore) is attributed to the COVID-19 pandemic. After the 41st meeting of the GST Council, the union government borrowed the revenue shortfall on account of GST implementation as a back-to-back loan against the Government of India (GoI) securities under a special window. The interest on the borrowing under the special window will be paid from the GST compensation cess collection as and when it arises until the end of the GST transition period (July 2017 to June 2022).1 After the GST transition period, the principal as well as the interest will be paid from the proceeds of the GST cess, by extending the cess collection beyond the transition period for any such period as may be required.

To compensate states for the shortfall in state GST (SGST) collection (including interstate GST [IGST] settlement on the SGST account) vis-à-vis projected SGST collection in 2020–21, the union government has borrowed (as a back-to-back loan) `1,10,208 crore against the GoI securities of five-year and three-year tenures.2 The borrowed amount is passed on to states and union territories with legislature as a special borrowing scheme and it will be serviced by the union government from the revenue that will be generated from the GST compensation cess collections. During 2020–21, the states had received `1,36,988 crore as GST compensation from the GST compensation fund and `1,10,208 crore under the special
borrowing scheme (Table 1, p 41). The total GST compensation cess collection during 2020–21 was `85,191.91 crore.

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Updated On : 6th Mar, 2023
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