Finance Minister Nirmala Sitharaman
The GST Council of India will meet next month on September 9. There may be a discussion on rationalisation of tax rates at the 54th GST Council meeting to be held next month, but a decision on changes in this regard is yet to be taken. The Finance Minister said important issues including possible extension of luxury goods and GST compensation cess will be discussed.
Last week, a meeting chaired by Bihar Deputy Chief Minister Samrat Chaudhary discussed how tax rates can be rationalised, though everyone agreed that there should be no change in tax rates. Sitharaman said the government aims to simplify GST rates without increasing taxes on any product. She also praised state finance ministers for their collaborative efforts to raise revenues, keeping aside political differences.
GST compensation levy duration may increase
The Finance Minister said that if requested by the states, the GST Council may also consider extending the GST Compensation Levy till June 2025. This cess is currently in force and is levied on certain goods to compensate for revenue losses suffered by the states due to the implementation of the GST. The GST Council will also discuss keeping life and health insurance out of the 18% net cess at its meeting on September 9.
Decision on the use of the deposited amount
Many states, including Karnataka, have raised the issue that a decision should be taken on the amount that the states should have received as compensation but was utilised by the central government during Covid. The council may also discuss how the GST resources should be distributed among the states. This is an important issue where many states have been demanding changes since the inception of GST.
Where is this money used?
The compensation cess expires in June 2022 but the amount raised through the cess is being used to pay the interest and principal of Rs 2.69 lakh crore borrowed by the Centre during Covid-19. The GST Council will now have to decide on the future of the existing GST Compensation Levy on its behalf and the modalities of its distribution among the states after repayment of the loan. To bridge the resource gap for the states due to lower release of compensations, the Centre has set aside Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 to meet a part of the shortfall in collections of duties borrowed and issued as back-to-back loans. In June 2022, the Centre extended the recovery of compensation duty till March 2026.
