GST Council rings first alarm bells on revenue

News:The GST Council has written to states telling them that the GST and compensation cess collections are unlikely to be met this year.


About GST Compensation Cess:

  • A cess is a tax that is levied by the government to raise funds for a specific purpose.
  • As part of the GST reforms, the GST Compensation Cess has been introduced through the GST (Compensation to States) Act, 2017.
  • According to the Act,states are guaranteed compensation for any revenue shortfall below 14% growth (base year 2015-16) for the first five years ending 2022.
  • The GST Compensation cess has to be paid every two months by the Centre to states.
  • However,due to a shortfall in tax collections,the Centre is unable to compensate states for loss of revenue.

What is the way forward?

  • The GST Council has decided to comprehensively review the tax structure in the wake of growing revenue concerns.
  • The review will include exempted items,GST and compensation cess rates and revenue augmentation measures. 
  • However,since the compensation cess is imposed only on luxury and sin goods under GST, any measure to generate more cess collections would either include imposing a higher cess on those items or tinkering at the highest 28% tax slab under the indirect tax regime.

Additional information:

About GST Council:

  • Goods & Services Tax(GST) Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
  • As per Article 279A (1) of the constitution, the GST Council was constituted by the President.
  • The council consists of the following members: (a) The Union Finance Minister is the Chairperson (b) The Union Minister of State in-charge of Revenue of finance and (c) The Minister In-charge of finance or taxation or any other Minister nominated by each State Government.