41st GST Council meet: Covid makes for grim backdrop as battle brews over revenue sharing


The Items and Companies Tax (GST) Council has scheduled two vital conferences on August 27 and September 19, based on senior Authorities sources. Finance Minister Nirmala Sitharaman had earlier talked about that the Council’s 41st assembly on August 27 would focus on a single matter: compensation to states for income losses beneath the oblique tax regime.

As compensation cess assortment has plummeted amid weak financial actions because of the Covid-19 pandemic, GST assortment in 2020-21 is unlikely to see sufficient development to satisfy this shortfall. Because of this, the 41st assembly GST Council headed by the Union Finance Minister is prone to see efforts to resolve the variations between Centre and states over duty of the cess legal responsibility.

The Council will weigh a number of choices reminiscent of market borrowing to fund compensation deficit, including extra objects beneath compensation cess, and/or rationalising tax price, HT quoted two officers as saying.

States and the Centre have voiced differing opinions on the proposal for market borrowing. The Lawyer Normal of India’s authorized opinion acknowledged that the Centre shouldn’t be obligated to pay for the income shortfall and the Centre can enable states “to borrow on the power of future receipts from the compensation fund”, with the central authorities taking the “ultimate resolution within the matter”.

States argue that the compensation corpus won’t have sufficient funds to cowl for the borrowing, and that it’s the Centre’s duty to pay compensation on time. States, thus, are extra in favour of increasing the ambit of compensation cess and elevating tax charges to construct revenues.

“There’s just about no cash left to pay compensation to states from April. Market borrowing is without doubt one of the options, however who will take the assure is a giant query and that problem must be resolved,” one official mentioned.

When the brand new oblique tax regime was launched in July 2017, the GST legislation assured states of a 14 per cent enhance in annual revenues for 5 years (as much as 2022) — with the income shortfall made good by way of compensation cess levied on luxurious items like vehicles and and sin items like liqour, cigarettes and different tobacco merchandise.

Compensation cess collected in 2017-18 and 2018-19 was greater than the GST compensation paid in these years. Whereas in 2019-20, states have been paid Rs 1,65,302 crore compensation although toal cess assortment was at Rs 95,444 crore and this hole is anticipated to widen this 12 months.

The Council could take a look at sin items, like pan masala which attracts 100 per cent cess with an higher ceiling at 130 per cent, to bolster cess assortment. Aerated drinks incur cess of 12 per cent with higher restrict at 15 per cent, and the speed of cess on tobacco merchandise is restricted at Rs 4,170 per 1,000 sticks or 290 per cent advert valorem. This offers the Council sufficient window to levy further cess in increments, which it could take a look at within the 42nd assembly as properly.

On the Council’s 42nd assembly on September 19, there’s a robust probability of discussions occurring on points like decision of inverted obligation construction, tax on pan masala and measures on ease of doing enterprise, based on varied studies.


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