Punjab Pushes for GST Compensation Cess Extension
Punjab is advocating for the extension of the GST compensation cess beyond March 31, 2026. The state argues that extending the cess is essential to address the significant revenue shortfalls it faces under the GST regime.
Punjab’s Compensation Receipts
Between 2017-18 and 2022-23, Punjab received ₹46,051 crore in GST compensation. This amount represents 6.9% of the ₹6.64 lakh crore that the central government released to all states.
Punjab ranks fifth in GST compensation receipts, following Maharashtra, Karnataka, Gujarat, and Tamil Nadu. The state’s high revenue shortfall stems from subsuming the purchase tax (excluding cotton) into GST, which caused insufficient compensatory revenues.
GST Compensation Cess Framework
Under the GST regime, states were guaranteed a 14% annual revenue growth for the first five years, based on the 2015-16 fiscal year.
The GST compensation cess on luxury and sin goods funded the shortfalls. Compensation payments ended in June 2022, but the government extended the cess until March 31, 2026, to repay loans taken during the Covid-19 pandemic.
Punjab’s Revenue Challenges
Punjab’s finance minister, Harpal Singh Cheema, outlined two key challenges:
- Subsumption of purchase tax into GST: This change caused annual revenue losses of ₹5,000–₹7,000 crore.
- Dependence on compensation cess: The state relies on this cess to maintain fiscal stability.
Cheema urged the government to extend the compensation cess to help offset the losses caused by the GST transition.
Future of GST Compensation Cess
A Group of Ministers (GoM), led by Union Minister of State for Finance Pankaj Chaudhary, is discussing the future of the GST compensation cess. The group includes representatives from states like Punjab, Assam, Gujarat, Tamil Nadu, Madhya Pradesh, and Karnataka.
Punjab has strongly argued for extending the cess beyond 2026, emphasizing its importance for ensuring fiscal stability.
Outlook
The decision on the compensation cess will significantly impact states like Punjab, which depend on it to manage revenue shortfalls. The GST Council will likely consider these concerns in light of the broader economic and fiscal context in the coming months.
