Draft GST compensation law to assume States’ revenue growth at 14% during transition

The Centre has set a modest 14 per cent target for revenue growth under the Goods and Services Tax and prescribed a formula that it will use to compensate States for any revenue loss under the GST for five years.

“The projected nominal growth rate of revenue subsumed for a State during the transition period shall be 14 per cent per annum,” said the draft GST compensation law, which was made public along with those of the Central GST (Goods and Services Tax) law and the IGST (Integrated GST) law, ahead of the crucial December 2-3 GST Council meeting.

According to official sources, the projected revenue growth is based on the actual average revenue growth of the States. “This is an average projection and will end any uncertainty of States towards the Centre’s intent for compensation,” said Mahesh Purohit, President and Director, Foundation for Public Economics and Policy Research.

The total GST compensation payable in any financial year will be the difference between the projected revenue in the financial year and the actual revenue collected by the State, using 2015-16 as the base year.

The Centre will provisionally calculate and compensate the States on a quarterly basis.

Though the Centre has been moving on GST implementation, meeting the April 1, 2017 deadline for rolling out this indirect tax may not be easy.

“Meeting the deadline of April 1, 2017 could be tough if we look at the ongoing strain between some States and the Centre due to demonetisation,” said Bimal Jain, Chairman, Indirect Tax Committee, PHDCCI.