Two months tax arrears remitted in one go to ease financial constraints of states after sunset of GST compensation
Two months tax arrears remitted in one go to ease financial constraints of states after sunset of GST compensation
The Center on Wednesday released over ₹1.16 lakh crore to states, equivalent to two monthly installments of tax devolution, to help front-load the capital expenditure capabilities of state governments this financial year.
Soon after the end of the assured Goods and Services Tax (GST) compensation to states from this July, economists expect the move to give states a monthly share of double the net income of central taxes and duties for August to boost their cash flows. and motivate them to plan and implement the capital expenditure outlay.
This development is also significant as some chief ministers expressed concern about their dwindling resources and through the extension of the GST compensation period and a higher share in the divisible pool of taxes in the Governing Council meeting of the NITI Aayog chaired by the Prime Minister. demanded more money from the Centre. Narendra Modi on 7th August.
Against the ‘normal monthly transfer’ of ₹58,332.86 crore, the Finance Ministry stated that an amount of ₹1,16,665.75 crore was released ‘in line with the commitment of the Government of India to strengthen the hands of the states to accelerate their capital and developmental expenditure’
‘Enthusiastic revenue’
Bank of Baroda Chief Economist Madan Sabnavis said, “As tax revenues have jumped, it is a good move by the Center to give a boost to discretionary spending to states, largely on capital investment projects.”
“In the last two years, we have seen that states first put a slight moratorium on such expenditure to meet their committed expenses like salary and pension. With more money with them now, they can consider such discretionary expenses,” he said, adding that such front-loading of tax transfers may not be repeated in the coming months.
In 2021-22, a large part of the increase in tax transfers was paid to states in the fourth quarter of the year, which reduced state government borrowings for that period, but did not translate into higher spending.
Rating agency ICRA estimates central tax transfers to be as large as ‘9.3 lakh crore’ this year, compared to ₹8.2 lakh crore projected in the budget on the back of higher non-excise duty revenue. It is estimated that a total of ₹3.18 lakh crore has been transferred to the states in the first five months of this year, which is about 39% of the budget estimate.
The higher-than-expected central tax devolution this year prompts an early reassessment of the monthly amount being shared with states to enable them to boost their capital expenditure, given the time required to plan and execute such projects. In view of this, the firm had previously noted .
monthly share up
The latest transfer indicates that the Center has substantially increased the monthly share for the states from around ₹48,000 crore that was shared with them in April.
“The amount released so far is 34% of our estimate of tax transfers for 2022-23, and an increase of 49% over the same period last year,” said Aditi Nair, Chief Economist, ICRA.
Earlier, on May 31, the Center had released GST compensation arrears of around ₹87,000 crore to the states for April and May, even though the GST compensation cess at that time was only ₹25,000 crore.
The Finance Ministry had said that the objective is to assist the states in managing their resources and ensure that their programmes, especially expenditure on capital, are successfully met during the financial year.
States now owe Rs 35,266 crore on account of the June 2022 GST compensation for which states were promised assured revenue in 2017 as part of the compact to transition to the GST regime. The Finance Ministry has said that those dues will be paid. From the collection of GST Compensation Cess, the levy of which has been extended till March 31, 2026.