The Centre, despite collecting large amounts in the form of cess and surcharge, has several crores as unutilised amount. In FY18, the unutilised amount was ₹61,590 crore and in the 2023-24 budget the Centre expects ₹95,023 crore as unutilised.

The second largest cess after GST compensation is the health and education cess. The government charges 4% health and education cess on the tax liability of individuals. This cess was introduced in Union Budget 2018 by then finance minister Arun Jaitley, who replaced the earlier secondary and higher education cess of 3%.

As the name suggests, health and education cess is collected with the aim of addressing the educational and healthcare needs of rural families in India.

With the Centre deciding not to extend GST compensation beyond FY23, big states are likely to lose considerable revenues.

The economies of half-a-dozen states are set to be most severely affected because of the termination of the GST compensation programme in June last year, a Reserve Bank of India report on state finances said.

The share of GST compensation had exceeded 10% of the tax revenue for states on average, according to the report. A least 10 states, including Karnataka, Tamil Nadu, Maharashtra, Gujarat and Uttarakhand, are expected to fall short of the expected 14% GST growth, as per their budget estimates.

“During the five-year transition period, the top five compensation-receiving states were Maharashtra, Karnataka, Gujarat, Tamil Nadu and Punjab. However, the states which are likely to be most adversely affected by the end of the compensation regime are Puducherry, Punjab, Delhi, Himachal Pradesh, Goa and Uttarakhand, for which the share of GST compensation in tax revenue has exceeded 10% of an average," says the RBI report.

It says the northeastern states had been the biggest beneficiaries of the GST regime, recording a compound annual GST revenue growth rate of 27.5% since the implementation of the tax—FY18 to FY23 period—as against 14.8% for all states.

Tamil Nadu, one of the biggest beneficiaries of the GST compensation since 2017 when the new tax regime was introduced, now stares at an annual loss of ₹20,000 crore from FY24 as the Centre has refused to extend GST compensation to states beyond June 30, 2022. But the state is confident of overcoming this shortfall through increased own-tax revenues and other means.

“We are confident of the state earning higher revenue. Revision in guideline value of properties and reduction in registration revenue could result in additional revenue of ₹2000 crore,” says Tamil Nadu finance secretary N Muruganandam.

Recent revision of tariff by Tamil Nadu Generation and Distribution Corporation (Tangedco) has resulted in lowering the loss faced by the discom. This, in turn, has lowered the burden on the Tamil Nadu government finances, the secretary said.

The state is also looking at mining to increase its revenue. “Mining is another big opportunity that we are eyeing to improve the revenues. It has to get the desired focus as it offers a lot of opportunities to expand the revenue,” said Muruganandam.

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