The GST Council not looking to increase tax rates to fund revenue shortfall of states is a positive move, but extending the period of levy of compensation cess beyond the originally envisaged five years would worry businesses, tax experts said.
At the 41st GST Council meeting on Thursday, the Centre presented before the states options to meet the shortfall in GST revenue, saying the deficit can be made good by states borrowing using a special window. This loan can be repaid after five years from the collection of GST cess.
If the states agree, it would effectively mean that the cess would continue beyond five years of the GST rollout.
Deloitte India Partner M S Mani said any decision to extend the cess beyond five years in order to fund the present compensation deficit could become a precedent. Hence, the period of extension of the cess should be minimal and predefined so that the cess does not become a permanent tax.
“Not considering any rate increases to make up for the shortfall in cess is a welcome measure, however moving to a market borrowing mechanism which would extend the tenure of the cess beyond five years would worry businesses that are subject to the cess,” Mani said.
Shardul Amarchand Mangaldas & Co Partner Rajat Bose said the Centre has put the onus on the states to borrow funds with due facilitation from the Centre.