Centre, states strike a compromise on GST compensation

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The centre and states are now only one hurdle away from striking a consensus on the blueprint for the roll out of the Goods and Services Tax (GST).

The second day of the meeting of the GST Council saw both sides agree to the compensation formula wherein the centre agreed to absorb any spillover of revenue losses accruing on account of the adoption of the new tax regime; at present it is pegged at Rs50,000 crore.

The stage is now set for a dialogue on the final agenda item: cross empowerment. The council will meet on 3-4 January to resolve this issue.

The GST Compensation Bill will provide a legal backing to the Centre’s promise to compensate the states if their revenue growth rate falls below 14% in the first five years of the GST roll out. The base year for calculating the revenue of a state has been decided as 2015-16.

A separate law will give the provisions a statutory backing to avoid any misunderstanding between the Centre and the states in future.

The Centre will impose a cess on luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks, over and above the highest 28%. Under the structure, the clean energy cess and cess on luxury items and demerit goods would be utilised to create a Rs50,000 crore fund every year which will be utilised to compensate the states for first five years of GST roll out.

Read more at: http://www.livemint.com/Politics/nPu3L0mDHZRXsJEH0QzVXJ/Centre-states-strike-a-compromise-on-GST-compensation.html