A few days before the Goods and Services Tax (GST) Council meeting, the Finance Ministry has notified the extension of levy and collection of compensation cess under the indirect tax regime till March 2026. This extension of the cess levy is in line with the earlier approval by the GST Council last year to compensate states for a period of five years since the July 2017 rollout and for any extension of compensation to states beyond June 2022. is not for.
The GST Council in September last year had decided to continue with the compensation cess only for repayment of borrowed amount after June 2022. “That (compensation to the states) ends with five years. The five-year (term) ends in July 2022. Beyond July 2022, the cess we are collecting, as agreed in the 43rd Council meeting, was for the purpose of repaying the loan. It starts in July 2022, and runs till March 2026 – only and only to pay off the loans given to the states from last year,” Union Finance Minister Nirmala Sitharaman Giving information to the media after the 45th GST Council meeting in September 2021, he said.
GST Compensation Payment
Under the GST, states were guaranteed compensation at a compounded rate of 14 per cent from the base year 2015-16 for losses caused by the implementation of the taxation regime for five years since its implementation. The compensation system will end in June.
“This is just to enable repayment of loans and pending compensation arrears pertaining to a period of five years. This extension is for paying the balance compensation relating to that five-year period, which includes loans,” said a senior finance ministry official.
In May, the Center had cleared the entire GST compensation payable so far by releasing Rs 86,912 crore to the states. Of this, Rs 25,000 crore was released from the GST Compensation Fund and the remaining Rs 61,912 crore was released by the Center from its own resources, pending collection of the cess.
revenue slowdown
States’ protected revenues have grown at a slower rate in recent years than the guaranteed 14 per cent compounding growth and COVID-19 The gap between protected revenue and actual revenue receipt, including reduction in cess collection, further widened. To meet the resource gap of states due to low release of compensation, the Center has released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans. Part of the shortfall in cess collection.
Out of the total compensation released in May, Rs 17,973 crore was in April and May dues, Rs 21,322 crore in February-March arrears and Rs 47,617 crore in compensation due till January 2022. The Center has paid Rs 7,500 crore as interest. The cost of borrowing is to be paid in FY 2021-22 and Rs 14,000 crore in this fiscal. The principal repayment will start from the next financial year and will continue till March 2026.