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Informist, Monday, Sep 9, 2024

 

--Rate rationalisation panel report given to GST Council 

--GST rate rationalisation panel to meet next on Sep 23 

--Decided to form GoM for GST compensation cess

--GST compensation debt repayment likely to end Jan 2026 

--Extra GST compensation surplus seen around 400 bln rupees 

--GST compensation cess panel to discuss future of cess 

--No decision yet on GST slab rationalisation

--May discontinue GST compensation cess post debt repay 

 

NEW DELHI – The GST Council has decided to form a group of ministers to look into the future of the goods and services tax compensation cess once it is discontinued after the repayment of back-to-back loans taken during the COVID-19 pandemic, Finance Minister Nirmala Sitharaman said today. Minister of State for Finance Pankaj Chaudhary will be the convenor of the ministerial panel, and it will include central and state revenue officials, besides state finance ministers.

 

Sitharaman, along with top revenue officials, was briefing the media after the 54th meeting of the GST Council held here today.

 

Sitharaman said that according to internal calculations, at the current pace of compensation cess collection and with the repayment schedule, the loan is likely to be repaid along with interest by December 2025 or January 2026. In that case, GST compensation cess is likely to be discontinued in December 2025 or January 2026, Revenue Secretary Sanjay Malhotra said.

 

In order to bring states on board to adopt the GST regime in 2017, the Centre had promised to protect 14% revenue growth for states for the first five years by levying a cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks. Originally, the collection of GST compensation cess was to be discontinued after June 2022.

 

During the COVID-19 pandemic, the Centre borrowed an additional 2.69 trln rupees from the market in 2020-21 and 2021-22, and passed on these funds to states as back-to-back loans to partly meet the shortfall in collections to compensate states. The loans were to be repaid from the GST compensation cess collections. The government had redeemed 781.04 bln rupees worth of such bonds in 2023-24, and a total of 1.91 trln rupees worth of these bonds were scheduled to mature in 2025-26 and 2026-27. The government will prepay 1.24 trln rupees worth of the outstanding GST-related debt in the current financial year. Deducting this, the government will be left with an estimated repayment of around 670 bln rupees.

 

The GST Council extended the compensation cess till March 2026 to pay interest and repay the loans.

 

If the GST compensation cess is levied till March 2026, the government will have around 400 bln rupees of surplus cess mop-up, Sitharaman said.

 

"But we cannot continue with the compensation cess once the debt is serviced, so before this excess happens, we have to come up with some other alternative...not for compensation but for something else," Malhotra said. 

 

The finance minister said that while the compensation cess is likely to be discontinued after repayment of debt, the GST Council might decide to levy a new tax. "Now after (compensation cess collection ends) if the cess has to be collected, what...how do we do it...for what we do...what rate at which we collect...what happens to the cess...that is what the GoM is going to talk about," Sitharaman said. 

In a post-Budget interview with Informist on Jul 25, Malhotra had said that the government planned to stop levying the compensation cess once outstanding GST-related debts were settled, and in lieu, add a component to the 28% GST rate which is levied on sin goods. 

 

"Once the compensation dues have all been cleared, then we will collect it as GST. Compensation cess will be withdrawn, something else will come. As soon as it ends, we will introduce a new GST or increase the 28% GST on those items. There is no proposal to increase the tax incidence," Malhotra had said.

 

The mechanism for discontinuation of compensation cess could be a contentious point in the ongoing tug-of-war between the Centre and states regarding the sharing of tax revenues.

 

To this, Sitharaman said that while the Centre receives ample flak for high levels of taxation, states in this case have also pitched for an alternative tax just so their revenues are not dented. 

 

Besides the new ministerial panel on the future of compensation cess, the Council today also decided to form a group of secretaries under Additional Secretary in the Department of Revenue, Vivek Aggarwal, to explain and decide how to take integrated GST forward, Sitharaman said. "A detailed discussion on this was held because today we have a negative balance of IGST. There is a balance IGST that needs to be retrieved from states who were given excess IGST over the period," she said. 

 

The additional secretary will assist states in understanding the mechanism and determining the excess funds on a voluntary basis. 

 

Integrated GST is one of the components of GST that is levied and collected by the Centre. The IGST is settled between the Centre and states on a monthly basis by the end of every month, on the basis of place of consumption and cross-utilisation of input tax credit. For the amount of IGST remaining unsettled, advance settlement is done from time to time on an ad-hoc basis between Centre and states in the ratio of 50:50.

 

In today's meeting, while the rate rationalisation panel's status report was accepted, Sitharaman said they would meet on Sep 23 again to hold further discussions. No decision had been taken so far to rationalise GST slabs, she said. Currently, there are four GST slabs – 5%, 12%, 18%, and 28%.

 

The ministerial panel tasked with assessing rate rationalisation had discussed tinkering with the slabs in its previous meeting on Aug 22, something that has been pending for a while now. While talks of reducing the number of GST slabs from four to three had gathered steam, states had broadly hinted at continuing the four-slab structure.

 

The next meeting of the GST Council is likely be held in November, Sitharaman said.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Avishek Dutta

 

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