New avatar likely for GST compensation cess

livemint.com:

₹2.69 trillion debt raised by the Centre when the cess collection was not sufficient to pay the states during the pandemic years. The cess may end even before March 2026 if the Centre is able to prepay the debt. “If before March 2026 we are able to pay all the loans and pay some of the compensation due to be paid because of non-receipt of audited figures from some of the states, the compensation cess cannot be levied beyond that," one of the persons cited above said on condition of anonymity.

“Products like tobacco and automobiles currently attracting cess over and above 28% GST cannot have GST ‘compensation’ cess after that. The GST Council will decide what is to be done after the compensation cess is removed... It can continue in some other form, no doubt," the person added.

The second person said that the constitutional guarantee to compensate states for revenue loss was only for the first five years of GST, and the extension of cess was done by a law as a special dispensation. “The term GST ‘compensation’ cess will be a misnomer in the future. If more revenue is to be raised, there can be higher GST rates.

These are issues to be decided by the council," said the person, who also spoke on condition of anonymity. Queries sent to the GST Council and the spokesperson for the finance ministry remained unanswered at the time of publishing. The second person added that the GST Council will need to decide whether higher tax rates or another levy replacing the compensation cess will require a constitutional amendment or only an amendment to the law.