India's GST cess seen as potential Rs 70,000 crore bonanza for the government

New Delhi: A strong goods and services tax (GST) compensation cess might provide the Center with an unexpected windfall of Rs 70,000 crore, even after the states have repaid the loans they took out during the Covid period, according to reports.

In addition to the peak 28% tax they are subject to, "sin goods" including pan masala, cigarettes, carbonated drinks, and cars are also subject to the GST compensatory cess. 

"If collection trends continue, we should be able to prepay all of the loans well in advance of the March 2026 deadline and still have roughly Rs 65,000–70,000 crore left over," ET quoted an unnamed official as saying. 

The sum is determined by estimating revenue before the FY25 budget is presented. 

Although the Centre has not yet made a decision regarding the usage of this additional cess cash, officials anticipate that the topic will come up during the GST Council meeting on Saturday when the rate rationalization discussion starts. 

Finance Minister Nirmala Sitharaman mentioned during the 52nd GST Council meeting in October 2023 that the council may decide on the cess collection roadmap after the levy expires in March 2026. On July 1, 2017, the date of the GST rollout, the Center had promised the states a five-year tax revenue growth rate of 14% CAGR. Any shortage had to be compensated for by receipts from the compensation cess.

The five-year period of this compensation to the states came to come end in June 2022, but it was prolonged till March 31, 2026, to allow the Center to repay the principle and interest on the Rs 2.69 lakh crore it had borrowed during the Covid period to cover the cess fund deficit. 

The deadline was established based on the patterns of collections in the first five years; however, due to strong GST collections, cess collections have increased more quickly than anticipated.

In May, GST cess revenue was Rs 12,284 crore, of which Rs 1,076 crore came from imports. In FY24, the Center received Rs 1.45 lakh crore from the cess. The FY25 objective was set at Rs 1.5 lakh crore in the interim budget.

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