Pankaj Chaudhary, Union Minister of State for Finance. File. | Photo credit: PTI
The Goods and Services Tax (GST) Council has set up a 10-member government, chaired by Finance Minister Pankaj Chaudhary, to decide on taxation of luxury, sin and bad goods once the compensation tax ends in March 2026.
The Group of Ministers (GoM), which includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal, will submit its report to the Council by December 31.
In the GST regime, compensation tax is levied at different rates on luxury, sin and bad goods in addition to the 28% tax. The proceeds from the tax, which was originally planned to last five years after the rollout of the GST or until June 2022, were used to compensate states for the loss of revenue they suffered after the introduction of GST.
In 2022, the Council decided to extend the levy till March 2026 to repay the interest and principal amount of the loan worth ₹2.69 lakh crore taken in the fiscal years 2021 and 2022 to cover the revenue loss of the states during the Making up for Covid years.
With just a year and a half to go before the cesspool would end, the GST Council at its 54th meeting on September 9 decided to set up a GoM to determine the future course of the cesspool.
“The mandate of the government is to make a tax proposal to replace the compensation tax after its abolition,” the GST Council Secretariat said in an office memorandum.
The task before the government is quite crucial as it would have to propose whether the levy should continue as a tax levy or as an additional tax. If it is called cess, the collection, like any other cess under the tax laws, goes to the Center.
If the government decides not to tax, but to impose additional taxes on luxury, sin and bad goods, it should propose what the rates would be, how many new plates would be needed and what changes in the law would be required.
Currently, GST is a four-tiered tax structure, with slabs of 5, 12, 18 and 28%. However, under GST law, tax of up to 40% can be levied on goods and services.
As per the calculations, the interest and principal of the loan of ₹2.69 lakh crore would be repaid by January 2026. Compensation tax collection in February and March 2026 is estimated at ₹40,000 crore.
The GST law states that any additional amount collected in the compensation pool will be shared equally between the Center and the states.
The GST Council would also have to decide whether to continue the compensation payment till March 2026 or end it by January 2026, or as and when the loan is repaid, and submit the new tax proposal as per the GoM’s suggestions on GST compensation. ces.
Published – Sep 27, 2024 9:26 PM IST