The Centre expects to mop up as much as Rs55,000 crore by levy of cess, including a big chunk from demerit and luxury goods, during the 9-month period of the current fiscal after the Goods and Services Tax (GST) is rolled out from July 1.
The amount to be raised through cess on coal as well as luxury items and sin goods will be used for compensating states for revenue shortfall following the implementation of the new tax regime.
As per the revenue department’s estimates, Rs22,000 crore is expected to come from cess on coal, lignite and peat in the July-March period of current fiscal. Cess on tobacco is likely to yield around Rs16,000 crore, a source told PTI.
The remaining amount in the ‘Goods and Services Tax Compensation Fund’ will come from cess on pan masala, aerated drinks and motor vehicles, the source added.
The revenue department is hopeful that funds raised through different kinds of cess would be sufficient to take care any revenue shortfall that the states might face on account of GST rollout.
In an interview to PTI earlier, Revenue Secretary Hasmukh Adhia had said: “Roughly, we would think that whatever compensation is required for current year it would be made good from the cess income which we will get this year and cess tables have been arranged accordingly.
“That is why we have levied cess even on small cars. The small cars have been kept within cess because there is an existing incidence on small cars and we didn’t want to lose some revenues there”.
Internal calculations of the department indicate that there would be a surplus in the compensation fund at the end of March 2018 since big states might not see any shortfall in revenue and it is only the small states which may need to be compensated.
“The big manufacturing states are anyways consumers and we do not anticipate any shortfall in the consumption even in producing states since majority of the commodity would become less expensive
after roll out of the GST. We expect revenues of most states to increase by more than 14 per cent,” a source said.
The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising his counterparts from states, has already decided on the formula for payment of compensation to states for any loss of revenue from implementation of GST in the first five years of implementation of the new tax regime.
It had agreed on keeping base year for calculating the revenue of a state at 2015-16 and considering a secular growth rate of 14 per cent for calculating the likely revenue of each state in the first five years of implementation of GST.