Centre Plans Not To Extend GST Compensation Beyond June 2022

At the next Goods and Services Tax (GST) Council meeting, the central government plans to inform states that the solid GST revenue trend indicates that states no longer need funds from the Centre as compensation. The next GST Council meeting is expected to be held this month.

The Centre is planning to explain that the 20% growth in GST revenue collections in April was more than the projected revenue growth rate of 14%, backed by GST compensation. Also, large states such as Maharashtra, Rajasthan, Uttar Pradesh, Gujarat and Haryana have recently got strong revenue collections.

Sources said that few states need to work on their state budget-related formalities, and once they complete them, the ministry will convene the next GST Council meeting.

While state governments were demanding GST compensation beyond June 2022 long ago, they are aware that proceeds of cess collection have to be used to repay the debt raised in the last two financial years to meet the compensation shortfall. Also, the states do not see the possibility of the Centre extending compensation payments beyond June 2022.

The official data shows that the private final consumption expenditure at current prices recovered to pre-COVID levels in FY 2021-22. It grew at more than 16% annually, indicating the boost in the tax on consumption received in the year.

Also, the department is working on proposals to increase GST on racecourses, casinos and online gaming. A Group of Ministers (GoM) led by Meghalaya Chief Minister Mr Conrad Sangma examines the feasibility of imposing a 28% GST rate on these segments.

Currently, the businesses in these segments are paying 18% GST backed by court orders due to a lack of clarity. Also, the businesses claim these are games of skill rather than that of chance.

The department is also working on the GST applicability on cryptocurrency transactions that are neither goods nor services. During Budget 2022, the government introduced a 30% tax on income from the transfer of virtual digital assets, including cryptocurrencies, with no set-off for losses and no deduction for costs other than acquisition. Also, cryptocurrency trading is subject to the deduction of 1% tax at the source.

The crypto business stakeholders are worried about increasing the GST rate on cryptocurrency services. However, the sources clarified that there is no proposal to raise the GST rate on services of cryptocurrency exchanges from 18% to 28%.

It seems the next GST Council meeting will have long discussions between the Centre and the states, especially with the compensation on the agenda.

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

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