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GST Council Meet
Why is it in news?
- The Goods and Services Tax (GST) Council on recently meet over the issue of compensation to the states.
Details:
- The meet failed to iron out differences between some states and the Centre over a plan to get the States to borrow from the market to meet an estimated Rs. 2.35 lakh crore shortfall in compensation cess collections this year.
- Some states reiterated that the Centre needed to borrow money, instead of states, to bridge the compensation deficit of Rs 2.35 lakh crore this fiscal.
- The centre had offered two borrowing options to states.
- The Council agreed to extend the levy of compensation cess under the GST regime beyond the five-year period up to June 2022 as originally envisaged.
What is Compensation Cess?
- Compensation cess was introduced as relief for States for the loss of revenues arising from the implementation of GST.
- States were guaranteed a 14% tax revenue growth in the first five years after GST implementation by the Central government.
- States’ tax revenue as of FY16 is considered as the base year for the calculation of this 14% growth.
- Any shortfall against it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess.
- Compensation cess is levied on products considered to be ‘sin’ or luxury goods.