Finance Commission upbeat on GST roll out, moots fund to compensate states

Mumbai: The 14th Finance Commission report, which was tabled in Parliament on Tuesday, has recommended creation of a Central fund to compensate the state governments during the roll out of the Goods and Services Tax (GST) regime, besides proposing a compensation schedule over five years.

The government tabled the GST bill in the Lok Sabha in December and is hopeful to pass the landmark legislation in the budget session. The GST implementation is expected to improve the tax collection and streamline the tax collection.

To facilitate the process, the finance commission has recommended the creation of an “autonomous and independent GST Compensation Fund” through legislative actions in a manner that it gives reasonable comfort to states.

Observing that the Union government may have to initially bear an additional fiscal burden arising due to the GST compensation, the commission said this fiscal burden should be treated as an investment that will return yields in the medium and long run.

“We also believe that GST compensation can be accommodated in the overall fiscal space available with the Union Government,” the commission said. According to the finance commission, the compensation to the states can be offered in a phased manner on the lines of VAT.

Going by this, states should be compensated with 100 per cent of the compensation in the initial three years, 75 percent of the compensation in the fourth year and 50 percent in the fifth year.