States stare at Rs 1L-cr revenue gap after GST transition ends

New Delhi, January 5

States might be facing a consolidated revenue gap of up to Rs 1.23 lakh crore on account of withdrawal of compensation after the five-year GST transition period ends on June 30, 2022, says a report by economic think tank NIPFP.

At the time of implementation of the goods and services tax (GST) on July 1, 2017, the Centre had promised to compensate states for the loss of revenue for five years at an agreed formula.

“If the GST compensation is withdrawn after June 30, 2022, consolidated revenue gap of states would vary between Rs 1,00,700 crore to Rs 1,23,646 crore, depending on expected tax buoyancy and reliability of data sources,” the report said.

“This implies that states will need to either generate an equivalent amount of revenue from exiting sources to continue with committed expenditures and/or cut down expenditures to cope up with revenue shock in 2022-23,” it added.

Due to the ongoing shortfall in overall GST collection as well as rising revenue gap between GST compensation requirement and GST compensation cess (GSTCC) mobilisation, timely release of GST compensation has become a matter of contention between the Centre and state governments.

The report said the withdrawal of GST compensation would have substantial impact on state finances of Punjab, Odisha, Goa, Chhattisgarh and Karnataka etc.