The decision to merge the compensation cess into GST taxes is a critical issue being deliberated by the GST Council, particularly in light of the cess's impending expiration on March 31, 2026. Several key factors influence this decision.
Factors Influencing the Decision:
1. Revenue Needs: States argue that the cess is necessary for ongoing developmental funding.
2. Revenue Growth: Recent tax collection trends show robust growth, undermining the argument for continuing the cess based on revenue needs.
3. Loan Repayment: The Centre borrowed ₹2,68,000 crore to address the revenue shortfall, which is expected to be fully serviced by January 2026.
Impact on Tax Structure:
Merging the compensation cess into GST taxes could lead to a more streamlined tax system, eliminating the complexity of multiple tax rates and structures. This integration would:
1. Simplify Tax Compliance: Reducing the number of taxes and rates would ease compliance burdens on taxpayers.
2. Enhance Neutrality: A unified GST rate would minimize tax distortions and promote economic efficiency.
3. Increase Transparency: A single tax rate would provide clarity on tax incidence.
However, consideration must be given to potential impacts on state revenues, particularly if petroleum products are transitioned under GST. This could result in reduced state revenue.
Conclusion:
In conclusion, merging the compensation cess into GST taxes offers opportunities for tax simplification and enhanced neutrality. However, policymakers must carefully weigh the factors influencing this decision, ensuring that state revenue concerns are addressed.
