The soon to be set up Sixteenth Finance Commission is likely to be tasked with reviewing the revenue collections of states under the Goods and Services Tax (GST) and the need for a review of the GST compensation cess.
The Finance Commission, a Constitutionally mandated body under Article 280 of the Constitution that decides on the devolution of taxes between the Centre and the states for a five-year period, is likely to be set up by the month end or early December. It will recommend the formula for sharing revenues between the Centre and the states for the five-year period from fiscal year 2026-27.
According to sources, the panel is likely to be given the mandate to review the revenue collection under GST and whether there is any shortfall for states with the compensation cess coming to an end.
The cess, which is levied on luxury, sin and demerit goods, was initially introduced for a period of five years along with GST from July 1, 2017, to help states meet any shortfall from the new indirect tax regime. While it technically came to an end in June 2022, the amount collected through the cess is being used to repay the interest and principal of the Rs 2.69 lakh crore that the Centre had borrowed during the Covid-19 pandemic for states.
In its last meeting in October, the GST Council headed by Union Finance Minister Nirmala Sitharaman discussed how to appropriate the revenue from the cess after March 2026. The Council is now expected to decide on the ‘GST compensation cess’ with regard to its name, and the modalities for its distribution among the states after some states raised the issue.
Read more at : Business Today
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