Compensation cess: GST Council’s GoM to decide on luxury, sin tax
The Goods and Services Tax (GST) Council has set up a 10-member GoM, chaired by Minister of State for Finance Pankaj Chaudhary, to decide on the taxation of luxury, sin and demerit goods once the compensation cess ends in March 2026.
The Group of Ministers (GoM), which includes members from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal, will submit its report to the Council by December 31.
In the GST regime, compensation cess at varied rates is levied on luxury, sin and demerit goods over and above the 28 per cent tax. The proceeds from the cess, which was originally planned for five years after GST roll-out or till June 2022, were used to compensate states for revenue loss incurred by them post the introduction of GST.
The task before the GoM is quite critical as it would have to suggest whether the levy would continue as cess or additional tax. If it is called cess, then like any other cess under tax laws, the collection would go to the Centre.
If the GoM decides not to levy cess but impose additional taxes on luxury, sin and demerit goods, then it has to suggest what would be the rates, how many new slabs would be required and and what are the legislative amendments that would be required.
