Kerala is yet to receive Rs 4,466.89 crore as Goods and Services Tax compensation since the 2017-18 fiscal. This was revealed by finance minister K N Balagopal in the Assembly on Tuesday.
In 2019-20 though, the Centre had transferred an excess Rs 11.40 crore as GST compensation to Kerala. This was the only time Kerala received compensation in excess.
In the remaining five fiscals, including the ongoing one, there has been a shortfall in compensation.
GST compensation is a legal entitlement. The GST Act mandates that States should be compensated for any fall in GST collections during the initial period of the GST's implementation.
For every state, the centre had worked out an optimum annual growth in tax collections. In Kerala's case, the optimum was 14% annual rise. Ever since the GST came into force, the growth in tax collections had consistently remained below 10% in Kerala. This was way below the target of 25-30% growth set by former finance minister T M Thomas Isaac.
The compensation, therefore, increases when the growth in tax collections drop. In the initial years, the fall in collections was not very pronounced.
In 2017-19, the first fiscal after the shift to the GST regime, Kerala was to receive a compensation of Rs 2,159.32 crore. Kerala received Rs 2,102 crore, a deficit of Rs 57.32 crore. In 2018-19, Kerala's compensation entitlement was Rs 3,557.79 crore. It received Rs 3,532 crore, which was short by Rs 25.79 crore.
During 2019-20, just before the COVID onslaught, tax collections started to fall below the 10% of the initial two fiscals. Though this was a measure of the inefficiency of the tax administration, it still made Kerala eligible for a higher compensation of Rs 8,099.60 crore. However, the state was paid Rs 8,111 crore, which was Rs 11.40 crore more than what Kerala should have got.
During 2020-21, when a nationwide lockdown was in place for a long period, growth in tax collections expectedly went on a free fall. The compensation, therefore, ballooned to Rs 12,144.85 crore.
The Centre, too, had found itself in dire straits, it's revenues also had dried up. But when States kept insisting on compensation, the Centre yielded. For 2020-21, it paid a part as compensation cess and asked the States to secure the remaining amount as a Special Window Loan whose interest would be paid by the Centre. Kerala received Rs 4,905.51 crore as compensation cess and Rs 5766 crore through the Special Window Loan, a total of Rs 10,671.51, which was still short by Rs 1473.34 crore.
This fiscal, till August, Kerala should have received Rs 7,044.11 crore as compensation. Instead, it has received only Rs 4,122.27 crore.
Under the GST Act, the compensation is a temporary measure that will end on June 30, 2022.
