Context
The Department of Expenditure, Ministry of Finance has released the 17th weekly instalment of Rs.5,000 crore to the States to meet the GST compensation shortfall. 91 percent of the estimated shortfall released.
What is GST Compensation?
- The 101st constitutional amendment Act has changed the financial federal structure of the country under which the states had ceded their authority to impose/change taxes according to their own will and now the State GST component is decided by GST Council, which is uniform throughout the country.
- There were apprehensions about the shortfall in the state revenue due to implementation of GST.
- Hence Centre assured the states to meet any shortfall to their revenue and thus, Parliament enacted the Goods and Services Tax (Compensation to States) Act, 2017 which was valid for transition period of 5 years.
What is GST Council?
- It’s a constitutional body under Article 279A (1) President has constituted GST council with composition:
- Finance Minister (Chairperson)
- Minister of State in charge of Revenue or Finance
- Minister in charge of Finance or Taxation or any other Minister nominated by each state government
Why was there a shortfall?
- COVID-19 and Lockdown
- Section 3 of the Act: 14% Annual growth rate of compensation to the states was highly unrealistic when economy was growing at below 7%.
