GST Council Meet Begins in Delhi; Opposition States Push to Continue Compensation Cess

The GST Council's 56th meeting has started today in the capital Delhi. In this two-day meeting, proposals and reforms of Goods and Services Tax i.e., GST rates, will be discussed under the chairmanship of Finance Minister Nirmala Sitharaman. Even before this meeting, eight big states ruled by the opposition have held a separate meeting to formulate their common strategy in the GST Council.

Finance ministers or representatives of states like Tamil Nadu, Telangana, Punjab, West Bengal, Himachal Pradesh, Karnataka and Jharkhand attended this strategy meeting of the opposition. The opposition states have a common agenda, which they are preparing to raise with full force in the council meeting. The biggest and most important demand of the states is to continue the GST compensation cess.

In fact, on July 1, 2017, when GST was implemented in the country. Then many states feared that they would suffer huge tax losses, as many of their old taxes (such as VAT) were being abolished. During that time, the central government had told the states that if their revenue grows by less than 14 percent annually after the implementation of GST, then the central government will compensate for that loss for the next 5 years (i.e. till June 2022). But in view of the circumstances of the Corona epidemic, it was extended till March 2026.

The central government had taken a loan of ₹ 2.69 lakh crore to help the states during the Corona period. To repay this loan, the compensation cess was extended till March 2026. But now due to strong GST collection, the government is on its way to repay this loan by October 2025. In such a situation, in this meeting, the compensation cess can be considered to be discontinued till 31 October 2025.

But, opposition states say that their financial condition is still not in good condition. If the central government stops this compensation, it will be very difficult for them to run their welfare schemes and do development work. Therefore, all these 8 states together will demand in the GST Council that the system of 'compensation cess' should be extended for the next few years.

GST compensation is an additional tax which is levied on some selected luxury and sin goods. The money collected from this was used to compensate for the loss of revenue of those states which suffered tax loss after the implementation of GST.

Recently, the finance ministers or their representatives of the opposition states had a meeting. These eight states ruled by opposition parties said that the government's proposal to restructure the slabs in the Goods and Services Tax would cause a revenue loss of about Rs 1.5 lakh crore to Rs 2 lakh crore annually to all the states. In such a situation, the Center should compensate for this loss for five years. Ministers from Karnataka, Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu and Telangana, along with a representative from the West Bengal government, have demanded a mechanism to avoid profiteering after tax cuts, ensuring that businesses get profits so that the common man can benefit.

Opposition states have suggested that additional duty be imposed on luxury and sin goods over and above the 40 per cent tax rate to retain the revenue from the existing tax slabs. A part of the income from this should be distributed among the states to compensate for the revenue loss they suffer.