Navigating the intricate web of taxation in India, the Goods and Services Tax (GST) emerges as a transformative reform, simplifying the indirect tax structure. Launched in July 2017, GST replaced a convoluted system of central and state taxes, envisioning a unified market across the country. Within this comprehensive framework, the GST cess plays a pivotal role, introducing an additional layer to the taxation landscape.
GST cess, introduced as part of the GST regime, is an extra levy imposed on specific goods and services in addition to the standard GST. Unlike GST, which serves to fund both central and state operations, the revenue generated from GST cess is earmarked for specific purposes. It is designed to compensate states for revenue loss incurred due to GST implementation or to fund specific projects and sectors.
The GST regime, in its pursuit of a single market, led to the elimination of certain revenue streams for states. To address this, the GST Compensation Cess was introduced for a transitional period of five years, ensuring states did not face financial setbacks. This cess fund guaranteed a 14 percent growth in tax revenue for states under the new indirect tax regime until June 30, 2022.
The COVID-19 pandemic disrupted GST collections, impacting the cess fund. To ensure state compensation, the central government borrowed substantial amounts in FY21 and FY22. While states were compensated until June 2022, the decision to extend GST cess until March 31, 2026, was made to facilitate the repayment of back-to-back loans.
The application of GST cess involves identifying specific goods and services subject to this additional levy. The GST Council, a constitutional body overseeing GST decisions, determines the applicable cess rate and the items attracting the cess. Typically, demerit or luxury goods, including tobacco products, aerated drinks, automobiles, and certain luxury items, fall under the ambit of GST cess.
The imposition of GST cess has far-reaching implications for various stakeholders. Consumers may experience higher prices for goods and services subject to GST cess, as businesses often transfer the cess burden to them. For businesses involved in the production or sale of goods and services subject to GST cess, compliance requirements become more intricate. Accurate calculation and collection of cess, in addition to regular GST, are essential to ensure adherence to regulatory guidelines.
