Ministers' panel discusses merger of GST compensation cess into taxes

The group of ministers (GoM) on GST compensation cess, under Minister of State for Finance Pankaj Chaudhary, on Wednesday discussed merger of compensation cess into GST.

States suggested that during the transition of cess, once it is decided to merge with taxes no new goods should be added to the list of luxury, sin and demerit goods.

States were of the view that since the compensation cess ends in March 2026, the only way to restructure it is to merge the levy with the taxes and bring about separate tax rates for the items on which cess is levied currently.

"GST compensation cess is coming to an end. A discussion needed to be done on what will be the future of the cess. Every state has given their views. This was the first meeting," Minister of State for Finance Pankaj Chaudhary said.

Should it continue as cess or be converted to tax and whether there would be changes in luxury, demerit and sin goods items, Chaudhary said, "Discussion is going on".

The next meeting of the GoM on compensation cess is in the second week of November.

Sources said all states have suggested merger of taxes under GST, because compensation cess has expired.

"But no new goods will be added. Compensation period has ended and if it has to be brought under GST then it has to be restructured and brought in as taxes," sources said.

The Group of Ministers (GoM), which includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal, will submit its report to the GST Council by December 31.

In the GST regime, compensation cess at varied rates is levied on luxury, sin and demerit goods over and above the 28 per cent tax. The proceeds from the cess, which was originally planned for five years after GST roll-out or till June 2022, was used to compensate states for revenue loss incurred by them post the introduction of GST.

In 2022, the Council decided to extend the levy till March 2026 to repay the interest and the principle amount of the ₹2.69 lakh crore worth loan taken in the 2021 and 2022 fiscal years to make good states' revenue loss during Covid years.

With just one-and-a-half year remaining for the cess to end, the GST Council in its 54th meeting on September 9 decided to set up a GoM to decide the future course of the cess.