The finance commission has indicated that the 14 percent rate of GST compensation to states is unsustainable, sources told CNBC-TV18.
According to the sources, the slowdown has compounded the situation with the liquor, petroleum, stamp duty collections hit to a great extent.
The average monthly cess collection is seen at Rs 7,500 crore against the states' requirement of Rs 16,000 crore, said the sources on the condition of anonymity.
The finance commission has suggested that the compensation for states should be extended beyond 2022 but at a lower rate, they added.
As per the Section 7 of the GST (Compensation to States) Act, 2017, the compensation payable to a state for loss of revenue shall be provisionally calculated and released at the end of every two months.
The agreement between the centre and states, at the time of the GST rollout was that the Centre will compensate states to ensure that their revenue is protected at the level of 14 percent over the base year tax collection, that is the revenues of 2015-16.
Taking cognizance of falling GST revenue collections and the lack of funds to meet the compensation requirements for states, state GST officers and stakeholders suggested a combination of rate rationalisation and hiking the cess limit on sin goods to overcome the current situation.
According to highly placed sources, many state officers and stakeholders suggested that the government can consider bringing down the 4-slab structure of GST to 3 rates, by hiking the 5 percent slab to 8 percent or above and merging the 12 percent with 18 percent slab and keeping the 28 percent slab as is.
First Published: IST