Centre to compensate for GST revenue loss quarterly

New Delhi, November 26: The Centre will compensate the states every quarter for loss in revenue due to the implementation of Goods and Services Tax (GST), but the final annual number would be decided after an audit carried out by the Comptroller and Auditor General (CAG).

The compensation would be met through levy of a cess called “GST Compensation Cess” on luxury items and sin goods such as tobacco, for the first five years. Any excess amount after the end of a five-year tenure in the GST Compensation Fund, so created, would be divided between the Centre and the states, said the draft GST compensation law made public by the Centre today.

Half of the excess amount would go to the Consolidated Fund of India and would form part of the overall tax kitty, which as per statute, is divided in a fixed proportion between the Centre and the states. The remaining 50 per cent would be disbursed among the states in the ratio of their total revenues from SGST in the last year of the transition period.

The loss in revenue to a state will be the difference between the actual realisation to a state under the GST regime and the tax revenue it would have got under the old indirect tax regime after considering a 14 per cent increase over the base year of 2015-16.

The draft law would be taken up for consideration by the GST Council at the next meeting on December 2-3.

The government today put in the public domain the draft Model GST Law, draft IGST Law and draft Compensation Law which would be considered by the GST Council for approval for information of trade, industry and other stakeholders.

A technical committee of officers from some of the states and the Centre was constituted to examine the inputs from the stakeholders and make suitable amendments to the Draft Model GST Law.