With the Centre on Thursday asking the States to raise shortfall in GST compensation through market borrowings, the compensation requirement of the State between April and July 2020 has been calculated to ₹13,764 crore. The State government now has to give its consent in the next one week if it is opting for the option given by the Centre.

The overall compensation settlement for the year combines to about ₹28,000 crore. Finance Department sources said that the government could choose the option if it is viable for the State finances as the Centre has indicated allowing cess collection to offset the financial burden for three years after the compensation period ends in 2023.

Soon after the GST Council meeting on Thursday, Home Minister Basavaraj Bommai, who represented the State, briefed Chief Minister B.S. Yeddyurappa, who holds the Finance portfolio, on the developments.

Meanwhile, Mr. Bommai in a note has said that the State has estimated total revenue collection through tax to be about ₹1.8 lakh crore, which, however, is not enough to have financial progress in the midst of COVID-19 pandemic and floods.

Additional finances

“It has been informed to the council that the State requires additional finances to meet the expenses. Despite the COVID-19 situation, the State has reported a collection of 71.61% in the last four months,” he said.

“We have urged the Centre to release the compensation to honour the Constitutional provisions. States will be in a difficult position to raise loans and repay them. However, the Centre has the powers to impose new tax beyond 2023, and for the same reason it was argued in the GST Council that it is better for the Centre to raise loan to provide compensation to the States,” Mr. Bommai said.

Further, the Home Minister has said that the Centre was urged to impose additional tax on luxury goods, tobacco and pan masala items.

GST collection down by 24%

The already financially-hit State government is staring at a huge gap. If the compensation part for April to August totals to about ₹13,764 crore, the State’s share in GST collections is down by 24.53% over the corresponding period last year. The SGST collection, which is the State’s share has dropped from about ₹16,300 crore between April and August 2019 to about ₹12,300 crore in the corresponding period this financial year.

If the State’s SGST collection for the period between April and August in 2019 stood at ₹10,115 crore, the collection for the same period in 2020 is down to ₹7,597 crore, owing to the COVID-19 related lockdown and subdued economic activity. Similarly, IGST settlement has seen a dip from ₹6,378 crore in 2019-20 to about ₹4,955 crore this year.

However, Finance Department sources said that the last two months’ revenue collections had been 90% of the corresponding period of last year.