States press hard for GST compensation beyond June 2022

Published Date: December 31, 2021


Many of States used their pre-Budget consultation session with the Finance Minister to press for extending the GST compensation regime for some more time.

GST compensation is given to States for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax Goods and Services Tax. This mechanism is to end in June 2022. States also asked the Centre to take a higher share of funding in centrally sponsored schemes; the Union government’s share varies from 50 per cent to 90 per cent (the maximum for the North-East States mainly).

TN’s demand

Tamil Nadu Finance Minister P Thiaga Rajan said he demanded extension of the GST compensation cess regime for at least two years because of Covid-19. He also made a case for raising the share of the Union government in the centrally-sponsored schemes.

Echoing this, Kerala Finance Minister K N Balagopal said his State wanted the GST compensation regime extended by five years. Many States made this demand and also flagged the issue of delay in releasing the GST compensation, the Minister.


Chhattisgarh Chief Minister Bhupesh Baghel said there has been a loss of revenue to the States due to the GST system, and the Centre has not arranged to compensate the loss of revenue of about ₹5,000 crore to the State in the coming year. He wanted the GST compensation grant continued for five years after June 2022.


Saying that Chhattisgarh’s share of central taxes was lower by ₹13,089 crore in the Union Budget of the last three years, Baghel wanted its share cleared fully in the coming year. He also wanted the ₹4,140 crore deposited with the Centre by coal mining companies at ₹294 per tonne of coal mined. transferred to Chhattisgarh soon.


“Many States asked for extending the GST compensation regime. If it is not extended, the finances of many States will be in a bad shape,” Delhi Deputy Chief Minister Manish Sisodia said after the meeting.


Rajasthan Education Minister Subhash Garg said extension of the compensation cess window till 2026-27 is a valid demand and the Centre should consider it. He also sought a reduction in the import duty on gold and silver from 10 per cent to 4 per cent. “Our most significant demand is that the Centre’s share in centrally-sponsored scheme has gradually reduced and States share has increased. Earlier, the share would be 90-10 per cent and now it is 50-50 per cent or 60-40 per cent. Our request is that it should go back to 90-10,” Garg said. Rajasthan also requested that all irrigation and water works projects should be brought under the Centre’s ambit and declared central schemes.


West Bengal also pitched for extension of GST compensation for another five years citing two years of difficult time due to Covid-19. The pandemic was not anticipated when this was fixed, said West Bengal Urban Development and Municipal Affairs Minister Chandrima Bhattacharya. With regarding to State borrowings, she said the additional borrowing window should be without any restriction.

Media: Business Line