Govt likely to extend levy of Compensation cess by 2 years

Under the existing GST compensation Act, 2017, for the shortfall in GST collection over an agreed formula is payable by the center for the first five years of the operations of the new tax system from July 2017 to June 2022. This is paid through collection made on account of cess levy on sin and luxury goods.

“The Draft Amendment Bill is likely to be discussed with the GST Council simultaneously as centre convinces the states to chose a preferred option to make good for funds falling short in the compensation cess kitty,” government sources added.

Once the draft amendment gets cleared by the council, it will have to be moved to the Parliament for a formal amendment to be made in the GST Compensation Act 2017.

Sources also clarified that the “two-year window suits the government politically as well, as 2024 will be the year of general elections and government would want to highlight that they have reduced the tax burden.”

Experts believe that if the compensation cess period is extended in order to overcome the present situation of a deficit, it would mean that businesses whose products attract cess, would be required to rework their costs, pricing, business plans, etc, as these businesses have been operating on the understanding that the cess would end in June 2022.

"The consumers too will have to wait much longer for any GST-induced reduction in prices of products such as automobiles, aerated drink, cigarettes or Pan Masala, where they expected that the costs will get reduced after June 2022,” experts added.

To watch out for is whether this proposal is slated to be discussed in the upcoming GST Council on October 5 or will the government wait for the states and union territories first to chose a preferred borrowing option and then take this proposal for their approval.