New Delhi: State governments have urged the union finance ministry to extend the period of payment of GST compensation to them beyond June 2022 to tide over the financial stress triggered by the pandemic.

The matter came up for discussion during a pre-budget meeting for upcoming Union Budget 2022-23 with finance ministers of all States and Union Territories (with legislature) on Thursday.

As per the GST Act, states are to be compensated by the Centre for shortfall in tax revenue on their switch to GST. This compensation has to be paid for five years since GST launch in July 2017 till June 2022.

As compensation payment would cease from middle of next year, states want that compensation cess levy beyond June 2022 should also be used to pay states facing financial stress for a few more years.

“Almost all states including Delhi want continuation of GST compensation for states beyond 2022. This is big issue with all states and if this compensation is not extended, financial position of states could deteriorate," deputy chief minister and finance minister of Delhi Manish Sisodia said after coming out from his meeting with Sitharaman.

He said when GST was conceived five years back, it was thought that the new tax would benefit states. “Now that we know that states have not gained that much but some states are actually incurring losses, then the responsibility for correcting this should also come to all of us and the Centre should extend collection and distribution of compensation cess," Sisodia said.

“Have requested FM to provide GST compensation for manufacturing states beyond June 2022. All the manufacturing states have supported my proposal," Bhupesh Baghel, CM, Chhattisgarh, after pre budget meeting with FM.

The GST Council has already agreed to levy compensation cess for an extended period upto March 2026 but this has been done only to enable the Centre to repay the loan including principal and interest taken to compensate state for GST collection shortfall during FY21 and any shortfall arising in FY22.

The extended period of GST compensation cess collection will only be recouped by the Centre without any distribution to the states. The states now want Centre to pronounce in the Budget 2022-23 that compensation payment to states will go beyond June 2022. This will require an amendment to GST Act.

Apart from GST compensation issue states also raised the issue of increasing the share of states in central tax pool kitty. As per the devolution formula, states get 42 per cent share in central taxes.

“We are not getting even this. So have requested the finance minister to consider giving Delhi the share in taxes that other states get. Also, we want Centre to pay municipal corporations of Delhi as per the formula devised for corporation in other states," Sisodia said.

Chattisgarh had also asked FM to spread the ambit of minimum support price (MSP) to every crop and increase the wages under MNREGA. Chhatisgarh said it is yet to recieve approximately  ₹13089 crore from central taxes while seeking more central funds for naxal affected states.