Compensation Cess Extended beyond 2022, say Sources

The 42nd goods and services tax (GST) Council meeting headed by Finance Minister Nirmala Sitharaman has approved extension of the GST compensation cess levy beyond 2022.

Sources aware of the development said that levy will be reviewed and decided from time to time. The proposal was to extend the levy by two years till 2024.

The decision was among the first to be taken at the meeting where debate on the Centre's proposals to meet the GST compensation shortfall, will take center stage.

The rift between BJP ruled and opposition led states may widen with the former set to seek faster disbursement of funds through the special borrowing window proposed by the Centre, having opted for borrowing Rs 97,000 crore.

But opposition led states will dig in their heels, demanding that Centre borrows and provides to states, as opposed to states borrowing, since it is the statutory obligation of the government to make up for revenue loss to states.

At the GST Council meeting on August 27, the Centre proposed that the states could borrow Rs 97,000 crore, equivalent to the revenue loss due to the GST transition, or Rs 2.35 lakh crore, equivalent to the revenue loss due to the GST transition and Covid-19. In the first option, the principal and interest would be paid from the cess fund, while in the second option, the states would bear the interest.

About 20 states have opted for the first borrowing option, but others have rejected both, which may prompt voting on the matter. States may also seek for a dispute resolution mechanism.