Agenda for Next GST Council Meeting: Extension of Compensation Cess Beyond June 2022

The next Goods and Service Tax (GST) Council meeting is likely to be conducted in the last week of August or the first week of September. According to sources, the meeting may focus entirely on discussions between the Centre and states on extending compensation beyond June 2022.

The Council had decided, in principle, to extend the compensation beyond the original five years in October 2020. Also, during the press meet of the 44th GST Council meeting, Honourable Finance Minister Nirmala Sitharaman said that there would soon be a special session only to discuss compensation cess beyond July 2022.

At the time of the GST introduction, the Center and states agreed that states would be compensated for revenue loss in the first five years after GST introduction, i.e., from July 2017 to June 2022. The shortfall is calculated assuming a 14% annual growth in GST revenue over the base year of 2015-16.

The Constitution (101st Amendment) Act, 2016, and GST Compensation to States Act, 2017 permits the loss of revenue to be compensated to states at the end of every two months up to 5 years from the introduction of GST.

The pandemic has hit the finances of the both Centre and states. The Council clarified that the Center could not compensate states for GST revenue loss due to COVID-19. Hence, the 43rd GST Council meeting had decided that the Central government would borrow Rs 1.59 lakh crore and release it back to States and UTs to meet the resource gap due to the shortage in the release of compensation.

These borrowings, made by the Centre and transferred to the states, are in addition to the normal GST compensation released every two months from actual cess collection. The balance will be released in the second half of 2021-22, in regular instalments. The Centre has already released Rs.75,000 crore to states and Union Territories (UTs) to compensate them for the shortfall in GST revenue.

The sources say that in the upcoming meeting, the Council might discuss various options with states on how to carry forward GST compensation beyond June 2022.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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