This extension of the surrender tax is in line with an earlier approval given by the GST Board last year for the repayment of loans intended to compensate States for the five-year period since the July 2017 deployment and does not affect any extension of compensation to States beyond June 2022. .

The Ministry of Finance has notified the Goods and Services Tax (Levying and Collecting Tax Period) Rules 2022, according to which the period of “levying and collecting tax under subsection ( 1) of Section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 Regulations shall be until March 31, 2026”.

The Board of the GST had in September 2021 decided to maintain the compensation tax only for the repayment of sums borrowed beyond June 2022. “This (compensation of the States) ends in five years. The five-year (period) ends in July 2022. Beyond July 2022, the contribution we collect, as agreed at the 43rd Board meeting, was intended to repay the loan. It starts in July 2022 and continues until March 2026 – solely and solely for the payment of the loan granted to the states since last year,” Finance Minister Nirmala Sitharaman had said during a media briefing after the 45th GST Council meeting last September.

Under the GST, pursuant to the Goods and Services Tax (States Compensation) Act 2017, States have been guaranteed compensation at the compound rate of 14% from the reference year 2015- 2016 for losses resulting from the implementation of the tax system for five years. years since its deployment. The compensation scheme will end this month. “This is just to allow repayment of the loan and pending indemnities relating to the five-year period. This extension is to pay the remaining indemnity relating to this five-year period, which includes the loan,” said a senior official in the Ministry of Finance.

States have demanded an extension of the compensation scheme under the GST and are expected to increase demand again at the next meeting.

According to remuneration-related calculations prepared for the Council meeting next week, Rs 89,783 crore has been paid out to the States this financial year, with the compensation fund now having a negative balance of Rs 59,801 crore. According to revenue growth data collated for the Council meeting, the India-wide average shortfall between protected revenue and gross state GST revenue (SGST) after settlement was 27.2% in 2021-22 compared to 37.9% in 2020-21. .

In 2021-22, only five of the 31 states/UTs – Arunachal Pradesh, Manipur, Mizoram, Nagaland, Sikkim – recorded revenue growth above the GST safe income rate. Pondicherry, Punjab, Uttarakhand, Himachal Pradesh and Chhattisgarh recorded the highest revenue gap between sheltered revenue and gross state GST revenue after settlement in FY22 .

In May, the Center had cleared all of the GST compensation payable so far by releasing Rs 86,912 crore to the States. Of this amount, Rs 25,000 crore has been released from the GST compensation fund and the balance of Rs 61,912 crore has been released by the Center from its own resources pending collection of the tax.

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Protected state revenues have grown at a slower rate than the guaranteed compound growth of 14% in recent years and Covid-19 has further widened the gap between protected revenues and actual revenues, including the reduction in collection of the tax. In order to bridge the resource shortfall of states due to the short release of compensation, the Center borrowed and released Rs 1.1 lakh crore in FY21 and Rs 1.59 lakh crore in FY21. fiscal year 22 in the form of back-to-back loans to make up for part of the deficit in inflows from disposals.

Of the total remuneration released in May, Rs 17,973 crore corresponded to April and May dues, Rs 21,322 crore corresponded to February to March dues and Rs 47,617 crore corresponded to the balance of remuneration payable until January 2022. The Center reimbursed Rs 7,500 crore as interest. the cost of borrowing in 2021-2022 and around Rs 14,000 crore is expected to be paid this financial year. From the next financial year, the repayment of the principal amount is expected to start and it will continue until March 2026.