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GST needs fundamental restructuring, says Finance Commission Chairman

GST needs fundamental restructuring, says Finance Commission Chairman

The 15th Finance Commission’s final recommendations for the period between 2021 and 2026 have been tabled in the Indian parliament.

The share of states in central taxes has been recommended at 41 percent, which is the same as 2020-2021.

The commission has also said that the 2011 census data represents the needs of the states and helps to fairly reward states that have done better demographically.

However, the Finance Commission has observed that a steady increase in cesses and surcharges have had a direct impact on the divisible pool for states because the increased cess collections are not shareable. The commission estimates cesses and surcharges to average 18.4 percent of gross tax revenue between FY22 and FY26 from 13 percent average between FY17 and FY19.

The commission has also recommended that the FRBM Act needs major restructuring and the timeline for defining and achieving debt sustainability should be examined by a high-powered inter-ministerial group. This group can draft the FRBM Act and oversee its implementation.

Healthcare spending has also received attention in the report. The finance commission has recommended that health spending by states should be increased to more than 8 percent of their budget by 2022.

It has also recommended that total public health expenditure should be increased to reach 2.5 percent of GDP by 2025.

To discuss the recommendations, Shereen Bhan spoke to NK Singh, chairman of 15th Finance Commission.

Speaking about Budget 2021 Singh said, “Budget 2021 marks a tectonic mind-set change. We have for once got out of the miasma of uncertainty to embrace the market or to get out of the market, to privatise or not to privatise, to find scope for private capital or to spotter private capital, I think we had remained trapped in this for very long. This Budget recognising for the first time that the issue of the ownership of public sector banks should not be cast in stone, that public sector undertakings which had become unproductive and outlived their utility yielding very poor returns to the sovereign which had invested vast resources on this, required a fundamental rethink.”

Speaking about Goods and Services Tax (GST) he said, “Realisations from the GST by way of revenue and by the consequence also on the GST cess has been less than what was expected and it has impacted the finances both of the union government and the states as well. In our chapter relating to resources we have given number of important suggestions on how to restructure the GST and these have been favourably commented upon by the finance minister herself in her Budget speech that on many issues, the GST administration, the procedures and in terms of the broad structure, we need to go back to the drawing board. The GST certainly requires a very fundamental restructuring and the finance secretary has said that they are quite conscious of this and that the GST council would consider many of the suggestions which have been made on the basis of our priority.”

Source: cnbc-tv-18


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Kerala Imposes Flood Cess In Addition To GST, A First In India

Kerala Imposes Flood Cess In Addition To GST, A First In India

A year after the worst floods in almost a Century, Kerala has become the first state to impose an additional cess. Starting August 1, Kerala will be implementing 1 per cent Flood Cess, apart from the Goods and Services Tax (GST), with the aim to generate funds for rebuilding the state.
“It has taken us almost a year to work out a special cess within the framework of GST. The delay is understandable, because it is for the first time that the GST council is giving permission to a state government to have an additional cess, apart from GST,” Finance Minister Thomas Isaac told NDTV.

More than 300 people had died and more than 3 lakh people became homeless in the floods that raged for more than 10 days. The state government estimated that the floods caused losses to the tune of Rs. 19,500 crore.

The state, the minister said, had a “special situation” with a big natural disaster and the expenditure suddenly shot up. “How do we meet this expenditure? There must be some manoeuvrability for the state government,” he said.

Essential household items which are not under the purview of GST — like rice, salt, vegetables or fuels like petrol, diesel or even items which fall under 5% GST tax bracket, like cooking oil or medicines, will not be included for flood cess.

The flood cess will be implemented for items which fall in the GST slab of 12% or above.

“We expect to collect 700 crore rupees in one year. The flood cess will be implemented for two years, so we are looking at something around Rs. 1400 crore,” Mr Issac said.

The funds would be meant for financing construction activities for flood-affected roads and even village roads. “We have already allocated 1000 crore for PWD works, another 1400 crore for village roads,” Thomas Isaac said.

“During last state government’s period, VAT rates increased by 2%. Right now, rates of GST – the real effective tax rate is 4-5 points lower than the pre-GST combined tax. One additional percentage will not be a very heavy burden, but must be seen as contribution to rebuilding the state,” the finance minister added, responding to the criticism from the Opposition. Ramesh Chennithala, the Opposition Leader, has alleged that the people in Kerala are not benefiting from the “price-hike policies” of the Centre and the state government.

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Source: NDTV.
SC upholds Compensation to States Cess under GST constitutionally valid

SC upholds Compensation to States Cess under GST constitutionally valid

The Supreme Court Wednesday upheld the constitutional validity of Goods and Services Tax (GST) Compensation to States, Act saying it was not beyond the legislative competence of the Parliament.

The top court said the Compensation to States Act, enacted by the Parliament in 2017, is not a “colourable legislation”.

A bench of Justices A K Sikri and Ashok Bhushan said the Act does not violate the Constitution (One hundred and firstĀ amendment) Act, 2016 nor is against the objective of Constitution (One Hundred and First Amendment) Act, 2016.

It held that the levy of ‘Compensation to States’ Cess is an increment to goods and services tax which is permissible under the law.

The bench while dealing with constitutional validity of the (Compensation to States) Act said that the expression ‘cess’ means a tax levied for some special purpose, which may be levied as an increment to an existing tax.

“The Scheme of Compensation to States Act, 2017 as noticed indicate that the cess is with respect to goods and services tax. There are more than one reason to uphold the legislative competence of Parliament to enact the Compensation to States Act, 2017,” it said.

The bench said that Article 248 read with Articles 246 and 246A clearly indicate that the residuary power of legislation is with the Parliament.

It said that in the present case, no contention has been raised that the subject matter of legislation was within the competence of State Legislature, and that the Parliament had no competence to legislate.

The bench said that after Constitution (One Hundred and First Amendment) Act, 2016, as per Article 270, Parliament can levy cess for a specific purpose under a law made by it.

It said that when Constitution provision empowers the Parliament to provide for Compensation to the States for loss of revenue by law, the expression “law” used therein is of wide import which includes levy of any cess for the above purpose.

“We, thus, do not find any merit in the submission of the counsel for the petitioner that Parliament has no legislative competence to enact the Compensation to States Act, 2017,” it said.

Dealing with second question, whether the Act transgresses the Constitution, the bench said that the Preamble of Compensation to States Act, 2017 expressly mentions the Act to provide for compensation to the States for the loss of revenue arising on account of implementation of GST in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016.

“Thus, the Compensation to States Act, 2017 has been enacted under the express Constitution (One Hundred and First Amendment) Act, 2016. We, thus, also do not find any force in the submission of the counsel for the petitioner that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016,” it said.

The court said it does not agree with the submission that Compensation to States Act, 2017 is a “colourable legislation”.

“We having held that Parliament has full legislative competence to enact the Act and the Act having been enacted to implement the Constitution (One Hundred and First Amendment) Act and the object being clearly to fulfil the Constitution (One Hundred and First Amendment) Act’s objective, we reject the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation”, it said.

With regard to the question, whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law, the bench said that GST imposed under the 2017 Acts and levy of cess on intra-State supply of goods and services or both as provided the CGST Act and supply of goods and services or both as part of IGST Act are two separate imposts in law and are not prohibited by any law so as to declare it invalid.

“We, thus, do not find any substance in the submission that levy of Compensation to States Cess on same taxable event is not permissible,” it said.

The bench also refused to set off payments made towards clean energy cess payment of Compensations to States Cess.

The apex court verdict came on an appeal filed by Centre against the Delhi High Court order passed in a case of Mohit Mineral Pvt Ltd which has challenged the validity of the Goods and Services Tax (Compensation to States) Act, 2017 and the Goods and Services Tax Compensation Cess Rules, 2017.

The Delhi High Court in its interim order provided that additional levy on the stocks of coal on which petitioner Mohit Minerals Ltd had already paid Clean Energy Cess in terms of Finance Act, 2010, shall not be required to make any further payment.

It had said however that on stocks of coal on which no Clean Energy Cess under the Finance Act, 2010 was paid any payment in terms of the Act would be subject to the result of the petition before it.


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Sources: Economic Times