Now the Center is preparing to compensate the revenue of the states by including Cess in GST.

Under the Goods and Services Tax (GST) Act, states have been guaranteed compensation for any loss of revenue in the first five years of the implementation of this law. The GST regime was implemented in July 2017 and it will be five years in June 2022.

Cess on cold drinks, cigarettes and cars can be included in GST after March 2026. In order to increase the revenue of the states, the central government is considering implementing it. The government wants to give a concrete shape in this regard after consulting the states. At the same time, there is a demand of the state governments that after the implementation of GST, the compensation given by the Center to the states to compensate for the loss of revenue should be continued.

Under the Goods and Services Tax (GST) Act, states have been guaranteed compensation for any loss of revenue in the first five years of the implementation of this law. The GST regime was implemented in July 2017 and it will be five years in June 2022. After this the states will not get GST compensation.

According to a report by LiveMint.com, GST Compensation Cess is levied on luxury, non-essential and non-essential items. Items like pan masala, cigarettes, cold drinks and cars fall under this category. Now the government has made up its mind to include the cess on them in the GST.

At the same time, about this new formula of the government, Rajat Bose of law firm Shardul Amarchand Mangaldas & Co says that there are many legal hurdles in including cess in GST. If this is done then it will be challenged in court. To include it in GST means to create another slab above 28 per cent.

States will benefit

Inclusion of cess in GST would mean that the states would receive 41% of the Centre’s GST collection and also get half of the income as State GST (SGST). 1.2 trillion is estimated to be deposited from this cess in the financial year 2022-2023. If we look according to the formula of the government, then the states will get Rs 84,000 crore out of this. This amount is expected to increase further in the future.

The government can give some relief to the automobile sector before including this cess in GST. Sources related to this matter say that the demand of the Central Government to extend the period of GST compensation by the states is not practical. There is no legal obligation on the government to continue this. The government believes that with the increase in GST collection, the income of the states has also increased. So now there is no point in compensating for the loss.

If there is more tax on luxury and non-essential items, then the state governments will get more revenue. Now GST revenue is at record high. The central government was liable to compensate the revenue loss for five years, and it is also fulfilling its responsibility.