The Group of Ministers on goods and services tax compensation cess held their first ever meeting Wednesday and after deliberations, could not arrive at at any meaningful alternative to compensation cess once its levy ends. “States gave their suggestions, discussions were held but no decision yet on its future,” Punjab’s Finance Minister Harpal Singh Cheema said.
The GST Council had decided to form a panel on compensation cess last September, headed by Minister of State for Finance Pankaj Chaudhary, to determine the future of compensation cess once its levy stops in March 2026. Besides Punjab, the panel has representation from Madhya Pradesh, Assam, Chattisgarh, Karnataka, Tamil Nadu, West Bengal, Gujarat, and Uttar Pradesh.
Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion in loans taken by the Centre to compensate states for revenue losses during the COVID-19 pandemic. However, there is a possibility that the dues will be repaid a few months prior, leading to confusion over what would happen to the excess funds accumulated.
According to Cheema, repayment of debt could be over by October, leaving around five months of ambiguity on whether the compensation cess will be halted or continued till March and then the excess will be distributed among states. This Group of Ministers is tasked with looking into this matter.
The compensation cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks, was introduced in 2017 to compensate states for the potential revenue losses in the first five years of the new GST regime. According to Cheema, Centre should look at ways of continuing with compensating states for the shortfall in revenue under the GST regime. Punjab has incurred annual revenue loss of INR 210 billion under the GST regime, the state’s finance minister said.
Source: Informist
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