The Narendra Modi government has budgeted for Rs 900 billion to be paid as compensation to states to make up for their losses on account of the goods and service tax (GST) in 2018-19 – a 47 per cent increase from the Rs 613 billion it plans to distribute in 2017-18. As a percentage of total 2018-19 Budget size of Rs 24.4 trillion, the GST compensation to states come to 3.6 per cent. According to the medium-term fiscal policy statement (part of the Budget documents), the Centre has also projected a compensation cess outlay of Rs 900 billion each for 2019-20 and 2020-21.
These however, are provisional projections and will be subject to change in future Budgets. The compensation cess is levied on high-value items like luxury cars, and demerit goods like tobacco. By law, the Centre has to provide a compensation to states for their revenue losses on account of GST for a period of five years. The Budget documents also make it clear that the amount earmarked for compensation cess cannot be used for any other purpose.
“In BE 2018-19, this amount is anticipated to be Rs 900 billion, compared with the Rs 613 billion that has been kept in RE 2017-18,” the Budget documents said. “The total expenditure in 2018-19 shows an increase of 10.12 per cent over the revised estimates of 2017-18. If we look at the expenditure after removing the component of the compensation cess portion, we see an increase of 9.1 per cent,” the documents said. The Budget documents also confirm that as a result of accruing GST
for 11 months instead of 12 in 2017-18, the Centre anticipates a revenue hit of Rs 350-360 billion as part of total GST
shortfall of more than Rs 500 billion this year. Finance Minister Arun Jaitley had said on Monday that the Rs 360 billion lost due to the missing 12th month had contributed significantly to the fiscal slippage in the current year from the budgeted 3.2 per cent of GDP to the revised 3.5 per cent. “If you translate that missing Rs 360 billion revenue of the 12th month, that accounts for some significant part of these 30 basis points in this year itself,” he said.
via Centre sees its GST compensation to states at Rs 900 billion for FY19 | Business Standard News