An autonomous research institute under the Ministry of Finance


Revenue Shortfall and GST Compensation: An Assessment

Publication date

Oct, 2021


NIPFP Working Paper No. 356


Sacchidananda Mukherjee


Shortfalls in GST compensation cess collection vis-à-vis GST compensation requirements of states for the Fiscal Years 2020-21 and 2021-22 are concerns for the Union as well as State governments. During 2020-21, the Union government borrowed Rs. 1.10 lakh crore against Government of India securities to provide compensation to the States. The Union government has also committed to borrowing 1.59 lakh crore during 2021-22 from the market (as back-to-back loans) to provide compensation to the States. As the GST compensation cess will be extended to pay interest and principal payment liabilities of the debt incurred by the Government of India, in this paper, we estimate whether GST compensation cess collections at the current rate will be sufficient to service the debt cost. We also rank States and their relative dependence on GST compensation for 2018-19 and 2019-20. We find that the economic structure (origin versus consuming state) of a state is an important factor affecting revenues and thereby the level of compensation requirement. 
Key Words: Goods and Services Tax (GST), GST Compensation, GST Transition Period, Revenue Protection, India.   
JEL Codes: H20, E62, H26
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