Approval for imposition of Compensation Cess by March 2026, for recovery of payment of GST dues
Ahead of the Goods and Services Tax (GST) Council meeting on June 28-29, the Finance Ministry has notified extension of levy and collection of compensation cess under indirect regime till March 2026.
This extension of cess levy is in line with the earlier approval by the GST Council last year for repayment of loans given to compensate states for a period of five years since the July 2017 rollout and compensation to states beyond June 2022. not for any extension. ,
The Ministry of Finance has notified the Goods and Services Tax (Period of Cess and Collection Period) Rules, 2022, according to which “period for levy and collection of cess under sub-section (1) of section 8 of goods and services” The Tax (Compensation to States) Act, 2017 will remain in force till March 31, 2026.
The GST Council had in September 2021 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,” Finance Minister Nirmala Sitharaman told the media after the 45th GST Council meeting last September. Said while briefing.
Under GST, as per the Goods and Services Tax (Compensation to States) Act, 2017, states will be entitled to 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. Guarantee was given. years since its rollout. The compensation system will end this month. “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.
The states have been demanding extension of the compensation regime under GST and are expected to raise the demand again in the upcoming meeting.
As per the compensation-related calculations prepared for the council meeting next week, Rs 89,783 crore has been released to the states in this financial year, with a negative balance of Rs 59,801 crore in the Compensation Cess fund now. According to the revenue growth data collected for the council meeting, the all-India average shortfall between protected revenue and post settlement gross state GST (SGST) revenue was 27.2 per cent in 2021-22, compared to 37.9 per cent in 2020-21. ,
In 2021-22, only five out of 31 states/UTs – Arunachal Pradesh, Manipur, Mizoram, Nagaland, Sikkim – reported revenue growth in excess of the protected revenue rate for states under GST. Puducherry, Punjab, Uttarakhand, Himachal Pradesh and Chhattisgarh have recorded the highest revenue gap between protected revenue and gross state GST revenue after settlement in FY22.
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.
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States’ protected revenue grew at a slower rate than the guaranteed 14 per cent compounding growth in recent years, and COVID-19 further widened the gap between protected revenue and actual revenue receipts, including a reduction in cess collections. To meet the resource gap of states due to low release of compensation, the Center borrowed Rs 1.1 lakh crore in FY 2011 and back-to-back loans to meet the shortfall of Rs 1.59 lakh crore in FY 2012 issued as. 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 in 2021-22 and is estimated to pay off around Rs 14,000 crore in this fiscal. From the next financial year, the repayment of the principal amount is expected to start and will continue till March 2026.