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Centre releases Rs 86,912 crore to states for meeting shortfall in tax collection

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The central government on Tuesday released Rs 86,912 crore from its coffers to clear the entire amount of GST compensation payable to states up to May 31, 2022, according to a statement issued by the finance ministry.

The decision was taken to assist the states in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year, the statement explained.

"This decision has been taken despite the fact that only about Rs 25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of Cess," the ministry said.

Goods and Services Tax was introduced in the country with effect from July 1, 2017 and states were assured for compensation for loss of any revenue arising on account of implementation of GST.

For providing compensation to States, Cess is being levied on certain goods and the amount of Cess collected is being credited to Compensation Fund. Compensation to States is being paid out of the Compensation Fund with effect from July 1, 2017.

Bi-monthly GST compensation to States for the period 2017-18, 2018-19 was released on time out of the Compensation Fund.

As the states' protected revenue has been growing at 14 per cent compounded growth whereas the Cess collection did not increase in the same proportion, COVID-19 further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection.

In order to meet the resource gap of the States due to short release of compensation, Centre has borrowed and released Rs.1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection.

All the States have agreed to this decision. In addition, Centre has also been releasing regular GST compensation from the fund to meet the shortfall.

With the concerted efforts by Centre and states, gross monthly GST collection including Cess has been showing a remarkable growth, the ministry added.

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