The Centre has written to all the States voicing concern that due to the lower Goods and Services Tax (GST) collections, the compensation cess might not be enough to pay for losses arising out of the tax system.

The communication comes at a time when several States, including Rajasthan, Kerala, Delhi, Punjab and West Bengal, have publicly urged the Centre to transfer pending compensation payments as they have not received the dues for several months.

What was the promise made by centre?

This situation assumes significance because it was the promise of compensation to the States for losses arising out of GST implementation that convinced a large number of reluctant States to sign on to the new indirect tax regime. The Centre had promised compensation for any shortfall in tax revenue due to GST implementation for a period of five years.

Poor GST Collections

The government had budgeted for ₹6,63,343 crore in GST collections for the current financial year 2019-20, out of which it has collected only about 50% in the first eight months. It had targeted ₹1,09,343 crore of compensation cess collections, of which it has so far collected ₹64,528 crore.

Source: The Hindu

Relevant for GS Prelims & Mains Paper III; Economics