New Delhi : The Centre has proposed setting up a separate fund under the Public Accounts to compensate states for possible losses after the implementation of the Goods and Services Tax (GST) in the country. According to the discussion paper circulated at the two-day GST Council meeting that concluded on Wednesday the Compensation Fund will be non-lapsable and will be only used to fund compensation of states.
The Centre has proposed to fund the compensation for possible revenue loss, on account of implementation of the indirect tax regime, by levying cess on luxury cars, aerated drinks and tobacco products, in addition to using the clean environment cess, reports Cogencis.
The government currently levies a clean environment cess of Rs 400 per ton on coal, lignite and peat. The Centre is planning to retain this cess, while subsuming all other cesses on the indirect tax side.
The entire proceeds from the cess will go into the fund, the paper said. According to the Constitution amendment bill passed by Parliament the Centre will provide compensation to states for any loss of revenues on account of implementation of GST for five years.
After five years, the balance amount available in the compensation fund will be devolved to the states as per formula laid down by the 14th Finance Commission, the paper said. However, at the GST Council meeting most states have opposed the cess on luxury cars and aerated drinks.
Based on the rate structure proposed by the Centre at the GST Council, the annual compensation is estimated around Rs 500 billion. The Centre has proposed a four-tier goods and services tax rate structure, with standard rates at 12 per cent and 18 per cent, peak rate at 26 per cent and low rate at 6 per cent. The GST Council will meet on November first week to decide on funding of the compensation and the rate structure. The GST has decided that 14 per cent revenue growth would be assumed to compensate states in case of losses after the implementation of GST.
