The states are given full compensation for the first five years of introduction of GST on the assumed revenue growth rate of 14% over the base year of 2015-16. States may not even require compensation," the person added.
“GST revenues are at a record high now, much higher than budget estimates and revised estimates. The person added that states would gain more if they get a share of higher taxes on these items than continuing to get compensation, which they will get only in case of a revenue shortfall. While a decision has not been taken on this, there is no reason why we should allow cigarettes or aerated drinks to continue at the same rate as non-sin goods," the person said. “The cess component charged today may get subsumed within GST. States have been pressing for the extension of GST compensation beyond June and are likely to take it up in the next GST Council meeting. Second, a surge in GST collections means states may not require compensation, which is paid out of cess collection proceeds only when states face a revenue shortfall. The Centre does not see any merit in states’ demand for continued GST compensation beyond June, as it has no legal obligation to compensate states beyond the first five years of the indirect tax implementation. Subsuming the cess into GST will mean that the states will get half of the proceeds as state GST (SGST) in addition to getting 41% of the Centre’s GST collections, a person familiar with the development said on condition of anonymity.
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