Delay in payment of GST Compensation to States affecting fight against COVID-19

The sum of Rs 17,287 crores released by the Union government to States on Friday includes an amount of Rs 11,092 crores as the advance payment of the first installment of State Disaster Risk Management Fund (SDRMF) for FY 2020-21, and Rs 6,195 crores as the Post Devolution Revenue Deficit Grant to 14 States as per the recommendations of the 15th Finance Commission.

New Delhi:The Union government Friday announced the release of over Rs 17,000 crores to States to assist them in their fight against the COVID-19 pandemic as a big part of it will be used in augmenting the health infrastructure in States. However, in violation of legal provisions, it continues to delay the release of nearly three times of this amount, an amount of nearly Rs 48,000 crores that the Centre legally owes to States as GST Compensation for the October-January period in the last fiscal.

The sum of Rs 17,287 crores released by the Union government to States on Friday includes an amount of Rs 11,092 crores as the advance payment of the first installment of State Disaster Risk Management Fund (SDRMF) for FY 2020-21, and Rs 6,195 crores as the Post Devolution Revenue Deficit Grant to 14 States as per the recommendations of the 15th Finance Commission.

However, despite the repeated demands by some States, there is no word as to when the Centre will fully settle GST dues for October-January period of the last fiscal which is nearly three times the amount released by the Centre yesterday.

And with the addition of GST Compensation for the month of February-March, which has become due in this month, the gross GST Compensation dues may even touch the figure of Rs 60,000 crore. It’s a substantial amount and its timely release to States will help them to meet the acute liquidity crunch as their revenue sources have virtually dried up due to the lockdown measures imposed by the Centre to contain community spread of COVID-19 virus.

In Prime Minister Narendra Modi's video conference with chief ministers of states this Thursday, Maharashtra Chief Minister Uddhav Thackeray reportedly sought release of Rs 16,000 GST Compensation to the state which has been delayed.

In a letter written to Prime Minister Narendra Modi a day before the video conference, West Bengal chief minister Mamata Banerjee, who did not participate in the video conference demanded the release of Rs 36,000 crore to her state. The amount includes pending GST Compensation money and certain other amounts, including the relief measures to help the state to deal with the devastation caused by the Cyclone Bulbul in November last year.

“Given this crisis, the first thing they (the Union government) should do is to pay the GST compensation,” said Kerala Finance Minister Thomas Issac.

With 295 confirmed COVID-19 cases, Kerala is at the fourth position in the country after Maharashtra (423), Tamil Nadu (411) and Delhi (386), as per the latest state-wise information available on the health ministry’s dashboard on Saturday (April 4, 2020).

However, during the initial days of the outbreak of the disease, Kerala was one of the two most affected states along with Maharashtra. Kerala was also the first state in the country to announce a Rs 20,000 relief package to contain the disease and minimise its adverse impact on the state’s population.

“Kerala is now distributing free food across the state through food-stalls, we are giving 15 kilos of rice and thousand rupees containment kit to every household. This has to be given, they can’t be allowed to be starved,” Thomas Issac had told ETV Bharat earlier this week as he sought more relief from the Centre for all the states, including increased allocation to the National Health Mission (NHM).

The Corona virus has killed over 68 people in the country and more than 59,000 people around the world.

Payment of GST dues will help in fight against Corona

According to Kerala finance minister Thomas Issac, the Centre owes Rs 3,000 crores to the state in GST Compensation dues while in case of Punjab, the total amount, including GST arrears, stands at around Rs 6,000 crore, according to the state’s finance minister Manpreet Badal.

“We can fight Coronavirus on our own if the Centre clears our GST dues,” Punjab finance minister Manpreet Badal had told ETV Bharat earlier this week.

The 21-day lockdown measures announced by Prime Minister Narendra Modi to contain the community spread of the highly contagious virus have worsened the liquidity situation of the state governments that have already been facing liquidity crisis due to a slowing economy and non-payment of GST Compensation by the Centre, among other things.

With the economic activity coming to an abrupt halt, the states will be staring at the problem of paying salaries and pensions to their staff and retirees from May onwards, prompting them to demand relaxation in their borrowing limit set under the FRBM Act.

GST Compensation Fund

Under the GST (Compensation to States) Act, 2017, a non-lapsable GST Compensation Fund has been created and the Union government acts as the fund manager.

The money accrued to the GST Compensation Fund forms a part of the Public Account of India and not the Consolidated Fund of India. And it can be directly withdrawn by the States once the Centre allocates the fund to them as per the formula given in the Act to calculate the shortfall in their revenue collection subsequent to implementation of GST in July 2017.

The GST Compensation Law requires the Centre to release GST Compensation to states on bi-monthly basis at the end of two-month period. For example, the Centre is legally required to pay the GST Compensation to states due for the month of April-May (first two months of a fiscal) in the month of June and so on.

However, this year, the Centre has only partly paid the GST Compensation dues to the states for October-November period that became due in December 2019. It has also not paid the entire amount of GST Compensation to States for the period of December-January period that became due in February this year.

“The Centre needs to pay over Rs 14,000 crore in GST Compensation to States for October-November period and Rs 34,000 crore for December-January period,” a source told ETV Bharat.

As per the legal provisions, this amount of nearly Rs 48,000 crore must have been released by the Union government latest by February this year, Rs 14,000 crore latest by December last year and Rs 34,000 crore latest by February this year. Now the GST Compensation for two more months, February-March, has also become due but it is yet to be calculated.

Even before the outbreak of the Corona pandemic, several States have been complaining to the Centre for delaying the payment of GST Compensation.

“This Constitutional Guarantee was the basis on which we had accepted the GST,” Kerala Finance Minister Thomas Issac, who has raised the issue of delayed payment of GST Compensation to States in past as well, told ETV Bharat.

Since the implementation of GST in July 2017, the Centre has so far collected nearly Rs 2.37 lakh crore as GST Compensation Cess and released an amount of nearly Rs 2.31 lakh crores to States, leaving a balance of over Rs 5,700 crore with the Centre.

Several state leaders, including leaders from Kerala, West Bengal, Andhra Pradesh and Punjab have demanded immediate release of GST Compensation to them that will reduce their pain as they prepare for a long haul against the deadly virus.

"The states have their individual drawing powers from the fund. To the extent of the amount allocated to them, they can draw themselves once the Centre issues allocation letters," a source aware about the functioning of GST Compensation Fund told ETV Bharat.

"Suppose they (States) are in urgent need, for example the COVID fight that they are doing, immediately they can draw money and use it,” said the source.

“Let us say they (States) are placing an order for some ventilators, what they can do is to draw from the fund directly and pay to the vendor,” said the source while explaining the rules governing the functioning of GST Compensation Fund.

(Report by Krishnanand Tripathi)