The Goods and Services Tax council is scheduled to meet today. The single point agenda of GST compensation to states affected by delays in the release by the center will be the main focus of the meeting. The 41st GST meeting will take place over video conferencing and can be predicted to be edgy as non-BJP ruled states meet up to pressure the center to compensate for the loss of revenue arising from the implementation of GST.
In the GST structure, there are four different slabs in which taxes are collected. They are 5 percent, 12 percent, 18 percent, and 28 percent. For the highest tax slab of GST, a cess is levied on luxury, sin, and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss.
Yahoo Finance reported an official saying, “The Council will meet tomorrow with a single-point agenda to discuss the compensation cess. Any changes in the GST rates or cess structure would also relate to how timely compensation to the states could be released.”
The meeting was actually scheduled to take place in July. The finance minister Nirmala Sitharaman scheduled it, then after the first meeting during the COVID-19 pandemic in June.
During the government imposed lockdowns across the country, the states met a sharp decline in GST collections. The country saw a reduction in economic activities which added to the shortcomings of GST collection. The central government can now compensate the states with a portion of their collection.
Since March, no compensation had been paid to any of the States. Even the compensation that was to be paid in March, was paid late in July.
The center had already released ₹ 1.65 lakh crore in Goods and Services Tax compensation earlier this year. The amount of cess collected during 2019-20 was Rs 95,444 crore.
The options that are being looked into are market borrowing, raising cess rate, or increasing the number of items for levy of compensation cess. There is also a high chance of discussion to correct inverted duty on certain goods like textiles or footwear. The COVID-19 pandemic also has taken out a major chunk of state revenue and has added to its fiscal problem.
Data from RPS legislative shows that the GST compensation requirement of Tamil Nadu and Kerala has more than doubled from 2018-19 to 2019-20. For Karnataka, the compensation requirement has increased by nearly 50%. States like Delhi, Gujarat, Karnataka, Maharashtra, Punjab, and Tamil Nadu have accounted for 52% of the total requirement of compensation for 2019-2020.
The central government is under “no obligation to pay GST compensation shortfalls to the states” according to an earlier opinion of the Attorney General. It is the GST council that has to decide how to make good of the shortcomings of the goods and services tax compensation fund by putting a sufficient amount to it, as published by financial Times.
According to the Attorney General’s opinion, he added that the GST council can recommend the center to allow the states to borrow on the strength of the future receipts from the compensation fund.
The compensation amount in 2018-19 was ₹ 69,275 crore and in 2017-18 was ₹ 41,146 crore.
The meeting might also come as good news for bike companies and bike lovers. There might be a GST slab revision during the meeting as signaled by the finance minister.
On the question of lowering the GST rates of the two-wheelers, the FM had said that it was a good suggestion “as this category is neither a luxury nor a sin good and hence merits a rate revision.”
Currently, there is 28% GST imposed on two-wheelers. On Wednesday, two-wheeler companies like Hero Motorcorp Ltd, Bajaj Auto Ltd, and TVS Motor Co Ltd saw a gain of 2-6% after FM Nirmala Sitharaman signaled the need for reduction of GST for two-wheelers.