Goa GST meet: ‘Rate Rationalisation’ to be core of discussion on rate-cut proposals

Shishir Sinha New Delhi | Updated on September 13, 2019

Automobile, biscuit and cement sectors are seeking a rate cut; cess fund used to compensate States turns negative

The Goods & Services (GST) Council is likely to bring in the arguments of ‘rate rationalisation’ on proposals related with rate cut for various sectors including automobiles.

These proposals will be considered during the GST Council meeting scheduled to be held on September 20 in Goa.

Meanwhile, the compensation cess fund has turned negative. It is a non-lapsable fund known as the Goods and Services Tax Compensation Fund. It forms the part of the Public Account of India and is utilised to compensate the States in case the revenue is below the targeted growth rate.

“Proposals of rate cuts for various sectors including automobile will be taken up for discussion during the council meeting,” a senior government official said here on Thursday.

However, he made it clear that considering the revenue situation and higher compensation pay-out, there will be discussions on ‘rate rationalisation’ for various goods and services especially whose rates were lowered earlier. But when asked whether this would mean possible rate hikes for some goods and services, the official said that could be taken up in future but not now.

Rate cut plea

Not only automobiles (present rate: 28 per cent plus cess), but biscuit (present rate: 18 per cent if the price is ₹100 or more) and cement industries (present rate: 28 per cent) are seeking rate cut, while restaurant sectors has petitioned for restoration of dual rate structure (present rate: 5 per cent without input tax credit).


The official said that any rate reduction will also affect the States’ revenue and their chances to get compensation.

The Centre is also concerned about the compensation cess. It has assured the States, through a legislation, that the revenue shortfall will be compensated fully for first five years.

For the purpose of calculating the compensation amount in any financial year, year 2015-16 has been assumed to be the base year.

Compensation for States

The growth rate of revenue for a State during the five-year period is assumed be 14 per cent per annum.

The base year tax revenue consists of the States’ tax revenues from State Value Added Tax (VAT), central sales tax, entry tax, octroi, local body tax, taxes on luxuries, and taxes on advertisements, etc.

In other words, any shortfall in 14 per cent growth will have to be compensated.

A GST Compensation Cess is levied on the supply of certain goods and services, as recommended by the GST Council to finance the compensation cess.

It is levied on automobiles, tobacco and other luxury items, all of which attract GST at the rate of 28 per cent.

According to the law, compensation is to be paid bi-monthly. Accordingly, three more bi-monthly instalments of compensation need to be released during the current fiscal.

The compensation for the period June-July 2020 was about ₹28,000 crore and if the remaining three instalments are also of the same order, the compensation required for the remaining period would be ₹84,000 crore.

However, according to the official, the cess amount expected to be collected in the remaining period based on the collection of cess in last five months is ₹58,200 crore. Taking into account the unutilised cess amount of ₹23,400 crore, the total amount available would be ₹81,600 crore.

“Any further shortfall in the revenue will further increase the gap between the amount available for release of compensation and amount of compensation required to be released,” he said.

Published on September 13, 2019

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