GST Council extends compensation cess beyond June 2022

Union Finance Minister Nirmala Sitharaman has informed that the compensation cess will be extended beyond 2022. The announcement came during the 42nd Goods and Services Tax (GST) Council meeting on Monday.  She affirmed that the compensation cess collected this year so far, amounted to Rs. 20,000 crore and would be disbursed to all states by tonight.

“Levy of Compensation Cess to be extended beyond the transition period of five years i.e. beyond June 2022, for such period as may be required to meet the revenue gap. Further details to be worked out,” the ministry said.

While BJP led states opted to borrow ₹97,000 crores to meet the GST revenue shortfall in the current fiscal, the opposition states like Punjab, Kerala, and West Bengal have argued otherwise. Another meeting is set to take place next week to discuss the conflict on whether the Centre should borrow instead of the states.

“10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and Centre should borrow. The decision was postponed to the next meeting on the 12th of October,” Kerala finance minister Thomas Isaac had informed.

Earlier in August, The Centre allowed the states to either borrow ₹97,000 crores from a special window facilitated by the RBI or ₹2.35 lakh crore from the market. It has also offered to extend the compensation cess for luxury, demerit, and sin goods beyond 2022 to repay the borrowing.

The payment of GST compensation to states has been a conflicting issue since last August when the revenues from GST started decreasing. So far, over 20 states have opted for the first borrowing option.

“Nobody is going to be denied the compensation which has arisen out of implementation of GST and COVID impact. A discussion with States is on. Around 20 States have written that they opt for Option 1,” Sitharaman said in a statement.

Additionally, a committee for devolution of Integrated Goods and Services Tax (IGST), has been formulated. The committee will be headed by Deputy Chief Minister Sushil Modi.

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