The central government is yet to pay states their share of the revenue, thanks to sluggish GST collections. Government officials have told CNBC-TV18 that states are yet to get their GST compensation which the Centre pays once in two months. State governments have started writing to the central government seeking funds and Kerala, Punjab and Delhi have already expressed concern about this issue.
Confirming that funds have not been paid to the states, Kerala Finance Minister Thomas Isaac said in a tweet, “It is unfortunate that Union government is insensitive to needs of state finance. Remember. GST compensation is a statutory right of states."
Strapped for funds, government officials say the Centre is likely to dip into the Consolidated Fund of India to compensate the states. The Centre is also planning to ask the GST Council for suggestions on the falling revenues and compensation to states in the next meeting.
So how can the government shore up revenues? According to officials, the Group of Ministers on Revenue is likely to explore rate rationalisation. Currently, the GST is a five-tier structure with a 0 percent tax slab followed by 5 percent, 12 percent, 18 percent and 28 percent. The Group of Ministers are likely to look at a 4-tier structure which may include 0 percent, 8 percent, 18 percent and 28 percent. The ministers’ panel is planning to look at these options and no final decision has been taken so far.
To discuss this in detail, CNBC-TV18 spoke with Chief Minister of Puducherry V Narayanasamy, Member of the GST Council from Goa Mauvin Godinho, Partner at PWC India Pratik Jain and Deloitte India Partner MS Mani.
Talking about the situation in Puducheery, Narayanasamy said, “As per the GST formula we have not received the compensation from the Government of India, even for August and September. I had told our state officials to get in touch with the Secretary of GST Council.”
According to Godinho, if there is a shortfall, the compensation cess is paid to all the states and there is no fixed date for receiving the compensation. “Maybe this time there are certain things which are being re-verified, so it is taking a little extra time. It is not that the compensation is not going to be paid to states,” he said.
"As far as Goa is concerned, it is only when we don’t submit certain details that it takes a little extra time and that is the case with other states as well," he added.
Jain pointed out that the economy is growing 5-6 percent and the collection has grown by 4.9 percent compared to the previous year’s corresponding period. “I think we should not rush and take immediate quick fix steps to garner more revenue and one step would be increasing the compensation cess,” he noted.
Mani observed that businesses have been going through a lot of turmoil owing to GST. "People had to make incremental changes to their internal processes and to their supply chains. This is something that the government should keep in mind. When we have a slowdown, obviously it will lead to decrease in collections because we have to bear in mind that GST is a transaction-based tax,” he said.