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GST compensation for another 5 years - Coggle Diagram
GST compensation for another 5 years
What is GST?
Consumption-based tax
Resulted in loss of revenue for manufacturing-heavy states
A comprehensive indirect tax for the entire country
Compensation under GST regime
Levied on five products considered to be ‘sin’ or luxury
Mentioned in the GST (Compensation to States) Act, 2017
To be levied for levied only for 5 years (till 2022)
Includes items such as- Pan Masala, Tobacco, and Automobiles etc.
GST Compensation Cess
Issues with compensation
Expenditure needs are sharply higher
Shortfall in 14% growth in GST revenues to the states
Tax collection has dropped significantly
Pandemic and recession
Why is the compensation necessary?
Left with only petroleum, alcohol, and stamp duty
GST accounts for almost 42% of states’ own tax revenues
Most taxes subsumed under GST
Sharp cuts in capital expenditure outlay amid the pandemic
States no longer possess taxation rights
Distributing GST compensation
Compensation released to the states every 2 months
Methodology specified in the GST (Compensation to States) Act, 2017
What alternative has the Centre offered?
Special RBI window
Market Borrowings
States were offered two borrowing options
Way forward
Centre can offer to fully compensate states without any borrowing
Privatization proceeds
Resources could be raised by increasing the tax or the cess
States can also be promised a share of other asset sales
Standard rate of 12%, to be fixed for at least a five-year period