GST compensation Fund
- July 23, 2020
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Subject: Economy
Context:
Reduced GST revenues due to pandemic has translated into delayed and pending compensation payments to states by the centre.
Concept:
- Compensation cess was introduced as relief for States for the loss of revenues arising from the implementation of GST.
- States, in lieu of giving up their powers to collect taxes on goods and services after local levies were subsumed under the GST, were guaranteed a 14 per cent tax revenue growth in the first five years after GST implementation by the Central government.
- States’ tax revenue as of FY16 is considered as the base year for the calculation of this 14 per cent growth.
- Any shortfall against it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess.
- Compensation cess is levied on five products considered to be ‘sin’ or luxury goods like SUV, pan masala, cigrattes.
- The collected compensation cessflows into the Consolidated Fund of India, and then transferred to the Public Account of India, where a GST compensation cess account has been created.
- States are compensated bi-monthly from the accumulated funds in this account.