To compensate the revenue losses being incurred after the implementation of GST, the government has decided to pay INR 8,698 crore to all states and Union territories with legislatures except Rajasthan and Arunachal Pradesh.

The compensation payout is approximately 58 percent of the total cess, which amounted to INR 15,060 crore, being collected in the first two months since the implementation of the new indirect tax regime. There are speculations that it will rise as the revenue losses to states were moderated because of high VAT collections in the month of June. The reason for this massive collection can be attributed to the huge destocking by businesses before the enactment of GST. However, after the GST rollout, VAT along with other indirect taxes levied by states have subsumed under the new tax regime.

One of the officials said, “A lot of to and fro is happening between the states and the Centre regarding the compensation payout. Rs 8,698 crore is a provisional figure and may change at the end of the year when revenue numbers would be finalised. Compensation payout is also expected to increase going ahead as July numbers were significantly lower due to high VAT collections by states.”

In the previous month, all states were requested to provide data on taxes being collected from levies included under GST for the months of in July and August. “Rajasthan reported a revenue collection figure for July sharply lower than Rs 1,858 crore. The reason for this steep decline in collection of revenue in July 2017 is being ascertained from Rajasthan since it is at variance with the revenue collection reported by other states for July,” an official said.

In addition to this, the compensation wasn’t provided to Arunachal Pradesh as the state didn’t furnish the data pertaining to the revenue collections for August.

The compensation cess is being charged on sin and luxury goods over and above the rate of 28 percent.