The Finance Ministry has addressed concerns regarding the adequacy of the GST Compensation Cess Fund, emphasizing that there is no shortfall in meeting compensation and loan repayment obligations. In a statement issued on Thursday, the ministry reassured stakeholders that the cess fund remains on track and could generate a surplus after all liabilities are settled.
Centre Committed to States' Compensation
The ministry reiterated its commitment to ensuring that states receive their due compensation and to repaying the back-to-back loans within the established timelines.
"It is expected that the entire loan will be repaid before March 2026, with a minor surplus projected in the cess account, which will be shared equally between the Centre and states," the ministry stated.
This clarification follows a certain report suggesting a potential shortfall of ₹1.37 lakh crore in the cess fund by March 31, based on a submission to the Parliamentary Standing Committee on Finance.
GST Cess Collections On Track
Dispelling fears of a shortfall, the ministry highlighted the robust performance of compensation cess collections. For the fiscal year 2024-25:
- The budget estimate for compensation cess stands at ₹1.51 lakh crore.
- By November 2024, collections reached ₹1 lakh crore, representing 66% of the target.
- This reflects a 7% growth compared to the previous year.
"This indicates that collections are on track to meet the target, dispelling concerns of a shortfall," the ministry noted.
Allocation of Compensation Cess
The compensation cess, levied on sin goods like tobacco, aerated drinks, and luxury items in the 28% tax bracket, is primarily utilized to compensate states for revenue losses during the GST transition period. Key developments include:
- Loan repayments: ₹92,087 crore was repaid in FY 2023-24, with ₹1.34 lakh crore planned for FY 2024-25.
- Remaining disbursements: ₹13,000 crore remains as final compensation, of which ₹5,508 crore has been disbursed. The balance will be released upon receiving audited accounts from six states.
Extension of Cess Collection Period
To address pandemic-induced revenue gaps, the Centre extended the collection of compensation cess on sin goods until March 31, 2026. The collections are being used to repay the loans raised in 2020-21 and 2021-22 to meet the shortfall in cess collections during the pandemic.
The Centre borrowed ₹1.1 lakh crore in 2020-21 and ₹1.59 lakh crore in 2021-22 to ensure timely payments to states during the crisis.
Surplus Expected Post Loan Repayment
The ministry expressed confidence that the cess fund would generate a surplus after meeting all obligations by 2026. The projected surplus will be equitably shared between the Centre and the states, further strengthening cooperative fiscal federalism.
Conclusion
The Finance Ministry's statement reassures taxpayers and state governments of the robustness of the GST Compensation Cess framework. With strong cess collections and a clear roadmap for loan repayment, the government remains committed to ensuring smooth financial operations under the GST regime.
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