Consumer or exchequer - who will win after GST compensation cess expiry?
The cess on the sale of goods and services is set to end on March 31, 2026. With states no longer being reimbursed for any shortfall in GST revenues, and loans taken to meet the deficit in the compensation cess fund set to be repaid early, the Centre faces a dilemma.
he Centre could face the challenge of choosing between the consumers and filling its own coffers, once it clears the Goods and Services Tax (GST) loans.
With COVID-19 hitting economic activity and tax collections, the Centre had borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 to bridge the deficit in the GST compensation cess fund to ensure that states received the guaranteed 14 percent growth in their tax revenues under the new indirect tax regime.
While the five-year protected revenue period ended in June 2022, it was decided the cess would stay in place until March 2026 to help repay the loans.
But what happens starting April 2026, when the cess ceases to exist? Quite simply, prices of goods on which the cess is levied should reduce and become cheaper for consumers.
