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Informist, Tuesday, Dec. 3, 2024

 

NEW DELHI – The Group of Ministers on Goods and Services Tax compensation cess, chaired by Minister of State for Finance Pankaj Chaudhary, has decided to seek six months' extension from the GST Council for the submission of the final report, as legal issues in compensation cess need to be ironed out, an official aware of the development said, requesting anonymity. 

"We have time till March 2026 to take a decision on cess. Hence, there is still time to discuss, and also a legal opinion may have to be taken on the issue," the official said. The Group of Ministers, which includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal, was mandated to submit its report to the GST Council by Dec. 31. 

The Centre, in order to bring states on board to adopt the GST regime in 2017, 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, collection of GST compensation cess was to be discontinued in June 2022.

However, GST collections dwindled during the COVID-19 pandemic. The Centre borrowed an additional INR 2.69 trillion from the market in 2020-21 (Apr-Mar) and 2021-22, and passed on these funds to states as back-to-back loans to partly meet the shortfall in collections. The loans were to be repaid from the GST compensation cess collections. So far, the government has redeemed INR 781.04 billion worth of such bonds in 2023-24, and a total of INR 1.91 trillion worth of these bonds were scheduled to mature in 2025-26 and 2026-27. The government will prepay INR 1.24 trillion 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 INR 670 billion. The GST Council extended the compensation cess till March 2026 to pay interest and repay the loans.

In its meeting held in October 2023, the GST Council had decided to start looking into the matter of compensation cess in preparation for the discontinuation deadline of March 2026.

In the first meeting of a Group of Ministers on GST compensation cess on Oct. 16, states recommended merging the cess with GST rates once the compensation cess regime ends in March 2026. According to the official, states on Monday suggested that once it is decided to merge the cess with taxes, no new goods should be added to the list of luxury, sin, and demerit goods.

They were of the view that since the compensation cess ends in March 2026, the only way to restructure it is to merge the levy with the taxes and bring about separate tax rates for the items on which the cess is levied, the official added. While they have sought an extension to submit their full report, at the next meeting on Dec. 21, the GST Council may take up the panel's interim report for discussion, another official said.  End

 

US$1 = INR 84.69

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Priyasmita Dutta
Edited by Namrata Rao

 

 

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