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The Centre is likely to pay only 200 bln rupees more in 2019-20 (Apr-Mar) to states as compensation for revenue losses on account of the goods and services tax, a senior finance ministry official said.

The government has exhausted the initial Budget estimate of Rs 1.01 lakh crore for compensation and the revised estimate has given an additional Rs 20000 crore of funds, the official said.

The Budget for 2020-21 had revised the expenditure for compensation to states to 1.21 trln rupees from 1.01 trln rupees.

"The only way we can exceed (revised estimate for payment of compensation to states) is if supplementary is given," official said.

States have been complaining about the delay in the payment of GST compensation by the Centre. The government had promised compensation to states for the first five years of GST to ensure revenue buoyancy of at least 14% to states.

"We have not paid compensation to states after September because the cess fund did not have enough money," the official said.

The Centre will compensate states only if there is money in the compensation cess fund, since the law says the compensation has to be paid out of the fund, the official said.

"Centre will only pay compensation out of cess fund, which is the existing law. The law does not say full compensation will be paid come what may," the official added.

According to the GST (Compensation to States) Act, proceeds of cess levied on certain luxury items would be credited to the compensation fund and states will be paid out of that fund.

The Constitution Amendment guarantees compensation to states for the first five years of the new tax regime, which was rolled out on Jul 1, 2017.

"There will be pushback from states, but we have already discussed this at length even before the law came into force. We have told states it is impossible to pay from our own resources, if the cess fund goes dry," the official said.

"The Constitution only provides for an enabling law and the law says payment only out of cess fund," the official said.

In her Budget speech, Finance Minister Nirmala Sitharaman had said from now on transfers to compensation fund would be limited to collection from GST compensation cess.

The Budget reduced GST collections target for the current year by 510 bln rupees to 6.12 trln rupees.

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Free Press Journal