GST Council has approved a Bill for compensation to States for revenue loss arising out of introduction of GST in the country. A Bill called Goods and Services Tax (Compensation to the States for Loss of Revenue) Bill, 20... shall provide for compensation to the States for loss of revenue arising on account of implementation of the goods and Service Tax for a period of five years as per section 18 of the Constitution (101st Amendment) Act, 2016. This will extend to whole of India and shall come into force from a date to be notified.
Highlights of Compensation Bill are as follows :
- Provides for revenue loss compensation to States for five years
- Nominal growth rate projected revenue has been decided @ 14%
- Base year to be financial year 2015-16
- Revenue will be the sum of revenue collected by the State and local bodies during the base year, taxes levied by the States or Centre net of refunds, with taxes namely, VAT, CST, Entry tax, Octroi, local body tax, Luxury tax, Advertisement tax, Excise duty on medicinal and toilet preparation and any cess or surcharge levied by State Government.
- Taxes as subsumed to be considered
- Local bodies taxes (other than state taxes) excluded
- Service Tax in J & K State will be included in revenue
- To be calculated and released on a quarterly basis to States
- Cess for 5 years (GST Compensation Cess) to be levied
- Input tax credit of Cess will be allowed
The projected nominal growth rate of revenue subsumed for a State during the transition period shall be 14% per annum.
For the purpose of calculating the compensation amount payable in any financial year during the transition period, the financial year ending 31st March 2016 will be taken as the base year.
The base year revenue for a State shall be the sum of the revenue collected by the State and local bodies during the base year, on account of the taxes levied by the respective State or Centre, net of refunds, with respect to the following taxes imposed by the respective State or Centre, which are subsumed into goods and services tax:
- Value Added Tax (VAT), sales tax, purchase tax, tax collected on works contract, or any other tax levied by the concerned State under the erstwhile Entry 54 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016.;
- Central Sales Tax (CST) levied by the Central Sales Tax Act, 1956;
- Entry tax, octroi, local body tax or any other tax levied by the concerned State under the erstwhile Entry 52 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016;
- Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling or any other tax levied by the concerned State under the erstwhile Entry 62 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016;
- Taxes on advertisement or any other tax levied by the concerned State under the erstwhile Entry 55 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016;
- Duties of excise on medicinal and toilet preparations levied by the Union but collected and retained by the concerned State Government under the erstwhile Article 268 of the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016; and
- Any cess or surcharge levied by the State Government under any Act which is included in the definition of ‘earlier laws’ as per section 2(39) of the State Goods and Services Act of the concerned State.
The revenue collected during the base year in a State, net of refunds, on account of following taxes, shall not be included in the calculation of the base year revenue for that State:
- Any taxes levied under any Act made under the erstwhile Entry 54 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016, on the sale or purchase of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption;
- Any taxes levied under the Central Sales Tax Act, 1956 on the sale or purchase of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption;
- Any cess imposed by the State Government on the sale or purchase of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption; and
- Entertainment tax levied by the State but collected by local bodies, under any Act enacted under the erstwhile Entry 62 of List-II (State List) of the Seventh Schedule to the Constitution, prior to bringing into effect the provisions of the Constitution (101st Amendment) Act, 2016..
The projected revenue for any year in a State shall be calculated by applying the projected growth rate over the base year revenue of that State.
Illustration: If the base year revenue for 2015-16 for a concerned State, calculated as per section 5, is ₹ 100, then the projected revenue for, say, financial year 2018-19 shall be as follows:
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Projected Revenue for 2018 – 19 = 100 1 + 14 3
100
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The GST compensation payable to a State shall be provisionally calculated and released at the end of every quarter, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor General of India (CAG).
In case any excess amount has been released as GST compensation to a State in any financial year during the transition period, as per the CAG audited figures of revenue collected, the excess amount so released shall be adjusted against the GST compensation amount payable to the State in the subsequent financial year.
The total GST compensation payable for any financial year during the transition period to any State shall be calculated as follows:
- The projected revenue for any financial year during the transition period, that could have accrued to a State in the absence of GST, shall be calculated as per section 6.
- The actual revenue collected by a State in any financial year during the transition period would be the actual revenue from State Goods and Services Tax collected by the State, net of refunds given by the State under Chapter XI of the SGST Act, and the Integrated Goods and Services Tax apportioned to that State, as certified by the Comptroller and Auditor General of India.
- Total GST compensation payable in any financial year shall be the difference between the projected revenue for any financial year and the actual revenue collected by a State as defined in sub-section (b).
The loss of revenue at the end of any quarter in any year for a State during the transition period shall be calculated at the end of every quarter.
There shall be levied and collected in accordance with the provisions of this Act, a cess to be called the GST Compensation Cess at such rate as may be notified, but not exceeding…. per cent, on the value determined under section 15 of the CGST Act, 2016, and on such supplies of goods and services, including imports of goods and services, and those supplies on which tax is payable on reverse charge basis under section 7(3) of the CGST Act, which may be prescribed on the recommendations of the Council, for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years, w.e.f. the date from which the CGST Act is brought into force.
However, no such cess shall be leviable under this section on supplies made by a taxable person permitted to opt for composition levy under section 8 of the GST Law.
Salient Features of Compensation Bill
- The nominal growth rate of revenue subsumed for a State during the transition period is projected at 14% per annum.
- FY 2016-17 is considered as the base year for calculating the compensation amount payable in any FY during the transition period.
- The base year revenue for a State will be the sum of revenue collected by the State and local bodies during the base year, taxes levied by the States or Centre, net of refunds, with taxes namely, VAT, CST, Entry tax, Octroi, local body tax, Luxury tax, Advertisement tax, Excise duty on medicinal and toilet preparation and any cess or surcharge levied by State Govt.
- The Acts of Central and State Govt. under which specific taxes will be subsumed into GST shall be notified.
- The revenue collected during the base year in a State, net of refunds, for the purpose of calculation of the base year revenue for the state namely Tax under Entry No. 54 of List-II (State List), CST and any Cess, on the sale or purchase of petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption and the entertainment tax levied by the State but collected by local bodies is excluded.
- The amount of service tax collected by the State of J&K, while calculating the base year revenue, is included.
- The GST compensation payable to a State shall be provisionally calculated and released at the end of every quarter.
- Cess is levied on supply of goods or services, including import of goods and services, supplies on which tax is payable on reverse charge basis under CGST Act, for a period of 5 years w.e.f. date from which CGST is brought into force, for providing compensation to the States on account of loss of revenue due to implementation of GST.
- Cess is not liable on supplies made by taxable person who opts for composition levy.
- Input Tax Credit in respect of GST compensation cess shall be utilised only towards payment of GST compensation cess on supply of goods and services under Section 8
It shall be necessary for the Central Government to see that GST is rolled out before 17 September, 2017. That is a constitutional necessity and is inevitable.
