Centre's compensation cess collection in April down 90% YoY at Rs 990 cr

States worries on revenue front will aggravate, unless GST Council, which meets next week, decides to borrow from markets

States' woes on GST compensation front refuse to die. The Centre could collect just Rs 990 crore from the compensation cess in April, 2020-21, almost one-ninth of Rs 8,874 a year ago, according to figures released by the Controller General of Accounts. 

The subdued mop-up would further increase the states problems unless the GST Council, which meets next week, decides to borrow from the markets. 

The union government has pegged compensation cess at Rs 110,500 crore in the Budget for 2020-21. This comes to Rs 9,208.3 crore a month on an average. It is widely acknowledged now that budget numbers have gone awry after the outbreak of corona virus. 

On the other hand, the monthly GST compensation requirement is estimated at Rs 20,250 crore in 2020-21 as against Rs 13,750 crore last year.
 

The union government has so far not distributed compensation to states for the entire FY'20. On Thursday, it distributed compensation to the tune of Rs 36,400 crore to the states for three months to February 2019-20. The  GST Compensation of Rs.1,15,096 crore for period April-November, 2019 was released earlier. 

This stands against Rs 95,551 crore collected as cess in the compensation fund in 2019-20. The Centre used the Rs 47,271 crore surplus cess from 2017-18 and 2018-19 for distributing the excess amount last year. As such it had Rs 1,42,822 crore in its cess kitty but gave Rs 151,496 crore to the states. This means it paid Rs 8,674 crore extra amount to the states. March dues are yet to be paid.  

Analysts attributed the muted compensation cess collections in April to deferring of payment of GST for March, April and May by June end. The government had earlier announced that the registered GST taxpayers with aggregate annual turnover less than Rs 5 crore can pay taxes and file GSTR-3B (summary input-output returns) due in March, April and May 2020 by the last week of June 2020.  For such taxpayers, no interest, late fee, and penalty were to be charged.

Those with annual turnover of at least Rs five crore can pay taxes till May 5 for the March activities without bearing any interest cost. However, if it is paid after this date and by June 30, an additional nine per cent interest rate a year will be levied. This interest rate is half of the current rate of 18 per cent a year

Compensation mechanism to states under GST has come under strain due to inadequate cess collection amid bleak consumer demand even before the outbreak of corona virus. 

That is why the GST Council in its March meeting took up a proposal whether it can borrow from the market to meet the states need for compensation. The issue was who will stand guarantee for such borrowings. 

Abhishek Jain, tax partner at EY, said,"Funds through compensation cess have not been enough to adequately compensate states for the revenue loss. With limited avenues to augment GST collections in the current scenario, the Central government has been mulling on ways to pull together amounts for compensating states on the revenue loss vis-a-vis erstwhile regime."

Assam finance minister Himanta Biswa Sarma said that while the idea to have the GST Council borrow from the market was mooted in the last Council meeting, it may not be feasible. 

"The GST Council is neither a sovereign body nor a sub-sovereign body. So even if you take loan, somebody has to give a guarantee. If Central government gives guarantee to loans, Central government can itself borrow," he said.

Assam collected just 20 per cent GST of average monthly trend in April, Sarma said. "In May we have collected around 40 per cent. "People pay as and when they are required to pay and not necessarily the next month," said Sarma.

He added that the state will collect 75 per cent of its receivables in June. "First quarter will be bad but with the impetus we are getting from the Centre things will go uphill from here," he said.

West Bengal finance minister Amit Mitra said that it is the Centre which should borrow to compensate states as it will anyway  have to give a sovereign guarantee. 

"Alternatively, the Centre should consider paying states from the consolidated fund of India. States are in a very bad shape. West Bengal collected only 13% of GST revenue in April compared to the same period last year," he said.
 

Kerala finance minister Thomas Isaac said the GST Council should be allowed to borrow from the markets to pay states and simultaneously extend the compensation cess by another year or so to repay the debt.

"We have to manage the crisis. So at least, the Centre should pay what is due to us, like the GST compensation cess. Centre can allow the GST Council to borrow and pay and extend the cess for one more year.If the Centre doesn’t want to borrow, it can permit the GST Council to borrow. These are things that can be done without affecting the Central government’s finances," he said.

He expected a 15 per cent decline in its state GDP in FY'21. GST revenue was about 7 per cent of the average monthly in April at Rs 150-200 crore as against Rs 3000 crore average collection, he said.

Meanwhile, Bihar saw a shortfall of 86% in GST collected in April.

Under the law, if states’ GST revenue does not grow by at least 14 per cent over base year of 2014-15, the Centre pays them the difference, on a bi-monthly basis for the first five years of GST implementation.

Compensation cess is levied on luxury and sin items such as aerated drinks, coal, pan masala, cigarettes and automobiles over the peak rate of 28 per cent.