The Goods and Services Tax Council has expressed concern about the Centre’s ability to meet the compensation needs of states due to lower tax collections in recent months, The Indian Express reported on Wednesday. Ahead of its meeting on December 18, the council wrote a letter to states, seeking suggestions to deal with the situation.
The GST Act promises states enough compensation from the Centre to keep their annual revenue growth 14% for five years despite any likely loss due to the implementation of the indirect tax regime. Most prevalent indirect taxes were subsumed by the new GST structure, which came into effect on July 1, 2017, and states are eligible for the compensation till 2021-’22.
However, some states have recently claimed that they have not got the compensation from the Centre for a few months now. Five states ruled by parties outside the National Democratic Alliance had last month complained of the delay in compensation for August and September. They said the delay had put them in acute financial difficulty and that the Centre has not given any explanation for the delay.
In its letter to the states, the council sought suggestions, such as reviewing items currently exempted from GST and revisiting rates of tax and compensation cess on various items, “to augment revenue”, PTI reported, quoting unidentified officials. The letter also suggested solutions such as “rate calibrations for addressing the inverted duty structure” and improving compliance.
The compensation requirements have increased significantly and are unlikely to be met from the compensation cess being collected, the letter said. The suggestions that states give will be urgently examined. The council asked states for inputs by December 6, according to The Indian Express. It is not clear when the letter was sent.
Raising the cess on some more products to meet the needs may be on the agenda when the council meets this month, officials told PTI. They said the discussion will be quite critical as lower GST and compensation cess collections have been a matter of concern in the last few months.
The upcoming meeting of the council will be the first that will seriously consider increases in tax rates, according to Mint. The council has in the past reduced tax rates on various products.