The GST Council is likely to approve a two year extension of compensation cess levy on goods and services to allow Centre to pay the entire shortfall in GST Tax collection by the States expected till June, 2022.
Sources in the Government said with 21 States expressing their preference for Option 1 proposed by the Centre to meet the GST compensation needs of States this year , the next course of action would extend the period of cess levy beyond five year GST transition period that ends in June, 2022.
As the Council is likely to adopt the compensation formula suggested by the Centre in the difficult year of Covid-19 pandemic, sources said it may also decide how long compensation cess levy should be extended to clear all dues to states.
“A two year extension of cess is most of the likely outcome of the Council meeting schedule for October,5. However the Council may decide to adopt compensation formula for FY 21in the next meeting and defer decision on cess extension till a more appropriate study of issue is done” sources quoted.
Under the existing GST Act compensation for shortfall of GST collection over an agreed formula is payable by the centre for the first five years of the operations of the new tax system from July, 2017 to June, 2022. This is paid through collection made on account of cess levy on certain goods and services.
The term of cess is co- terminus with compensation liability with the Centre. So, the Council should withdraw cess after completion of five years . But with Covid presenting different challange before the governments and has lead to States bleeding over GST collections, the compensation needs of the Centre has grown manifold.
As cess could not cover this high level of compensation needs this year and may be in next year, there is a talk of extending the levy of cess beyond June, 2022.
As per the Centre’s projection, the total amount expected to be collected from Compensation Cess would be to the tune of Rs 65,000 crore in Fy 21 while the total compensation payable to all States and union territories may be to the tune of Rs 3,00,000 crore. So there is a total shortfall of Rs 2,35,000 crore expected this year.
The Centre wants this shortfall be met through extra borrowings under special dispensation by the states while their dues get settled after June, 2022 by extending the compensation cess levy.
Source: businessinsider.in
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