GST Council puts off compensation decision till August

A final decision is likely to be taken at the next meeting of the council in the first week of August

New Delhi: The GST Council on Wednesday took no decision on the most sought-after yet contentious issue of the extension of goods and services tax compensation for the states beyond this month. A final decision is likely to be taken at the next meeting of the council in the first week of August. In addition, the council granted the group of ministers (GoM) more time to decide on rate rationalisation measures.

When GST was rolled out, the states were promised compensation for revenue loss till June 2022. The compensation amount was raised by levying a cess on luxury, demerit and sin goods over and above the 28 per cent tax.

Briefing the reporters after the two-day long meeting with her state counterparts in Chandigarh, Union finance minister Nirmala Sitharaman said that several states have urged the Centre to extend the deadline for compensation beyond June 30. "Around 16 to 17 states pitched for extending the mechanism to compensate states for revenue lost from the implementation of GST beyond June 30, but no decision was taken," she said.

Besides the compensation issue, the finance minister said that during the two-day long meeting, the GST Council considered four reports presented by the GoMs. "The four reports were on: Rate rationalisation; betting, gambling, lottery; IT and technology related changes; movement of precious metals like gold," she added.

Elaborating on the discussion regarding the compensation cess, she said, "Of the 16 states, 3-4 spoke of evolving their own revenue stream to break from the compensation mechanism."

With two years being lost in the pandemic, the states have sought an extension of this compensation mechanism. "Puducherry finance minister K. Lakshminarayanan said all states sought an extension of the compensation mechanism, but no decision has been taken," she said.

The Centre, last week, notified the extension of the compensation cess levied on luxury and demerit goods till March 2026, to repay borrowing that were done in 2020-21 and 2021-22 to compensate states for GST revenue loss.

When a nationwide goods and services tax subsumed 17 central and state levies from July 1, 2017, it was decided that states will be compensated for any loss of revenue from the new tax for five years. With two years being lost in the pandemic, states have sought an extension of this compensation mechanism.

Although the council considered taxes on online gaming, casinos and horse racing, no decision was taken in this regard. Rather, it has given the GoM time until July 15 to firm up its report after speaking with the stakeholders.

Speaking on the issue, the finance minister said that the GST Council also deferred decision on levying a 28 per cent tax on casinos, online gaming, horse racing and lottery. "A group of ministers headed by Meghalaya chief minister Conrad Sangma has been asked to consider submissions of stakeholders again on the valuation mechanism and submit its report by July 15. The report will be discussed by the GST Council at its next meeting in the first week of August," she said.

On the issue of rate rationalisation, the council -- the highest decision-making body of the indirect tax regime, which is headed by the finance minister and comprises of representatives of all states and UTs -- discussed it at the meeting but did not take a decision. "The council has come to the conclusion that the rate rationalisation measures will be taken in 3 months," Ms Sitharaman said.

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