FM Sitharaman says govt will pay states' share of GST; 'compact will be honoured'

Union Finance Minister Nirmala Sitharaman on Saturday said the Centre government would keep its "compact" with states when it comes to sharing of cess collected through Goods and Services Tax (GST). She said there was a delay in transfer of cess to states as it was not "adequate". "In the last GST collection, the cess fund wasn't adequate ...so the states didn't get the 14 per cent compensation. When we collect the required cess, we will honour the compensation rate," the FM said at the Hindustan Times Leadership Summit in New Delhi on Saturday. The FM also added: "It's not that the compact has been broken. The compact will be honoured".

Kerala had last week threatened to drag the Centre to the Supreme Court over delay in compensation to states. Notably, the Centre is yet to pay states' GST share due for the past four months. The finance ministers of Kerala, Delhi, Rajasthan, Punjab, Chhattisgarh and Madhya Pradesh had even met the FM in this regard this week.

The Goods and Services Tax (GST) panel, which is concerned over the declining revenue, is planning to introduce several key measures to increase collection, including increasing the 5 per cent tax slab to 6 per cent and raising tax on cigarettes and aerated drinks.  The high-powered GST panel is scheduled to hold crucial consultations with states and GST officials on December 18. However, there is no official confirmation in this regard.

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A Business Standard report earlier said raising of the tax slab to 6 per cent could bring in additional revenue of over Rs 1,000 crore a month to the government. "An idea that has emerged is increasing the 5 per cent slab to 6 per cent, which will mean 3 per cent GST each for the Centre and states. Some states are arguing that this will mean a 20 per cent increase in the tax rate. But in value terms it will not be much," a government official told daily.

There are a total of five tax slabs, including zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent. Of these, 18 per cent tax slab accounts for a maximum of 60 per cent GST tax collection, while 5 per cent tax slab accounts for just 5 per cent. Other two slabs -- 12 per cent and 28 per cent -- generate 13 per cent and 22 per cent tax revenue of the total collection for the government.

In a bid to tackle dwindling GST collections, the government had formed a committee of officers in October this year to suggest measures to boost collections and make businesses comply voluntarily. The committee has commissioners from state GST council of Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal, Punjab along with Joint Secretary and Executive VP of GST Council.

The committee was formed after GST collections fell sharply to a 19-month low of Rs 91,916 crore in September. Tax collections stood at Rs 95,380 crore in October. However, in a little respite, the GST collections crossed Rs 1 lakh crore mark to Rs 1.03 lakh crore in November. After two months of negative growth, GST revenues witnessed recovery with a positive growth of 6 per cent on a yearly basis during the month under review.

Also Read: GST revenue crosses Rs 1 lakh crore mark in November