Indian Express Editorial Summary

Editorial Topic : A Grand GST Bargain

 GS-3 Mains Exam 

Revision Notes

Context:

• Compensation Cess: The compensation cess was introduced to compensate states for revenue losses due to GST implementation.
• Loan Repayment: The government plans to repay the GST compensation loan by January 2026.
• Cess Continuation: The GST Council is considering extending the compensation cess beyond March 2026.

Compensation Cess and Constitutional Amendments:

• Specific Purpose: Cess can be imposed only for a specific purpose.
• Constitutional Amendment: Continuing the compensation cess beyond March 2026 may require a constitutional amendment.
• Effective Tax Rates: Discontinuing the compensation cess would significantly reduce effective tax rates on demerit, sin, and luxury goods.

Options for Cess Beyond Compensation Cess:

• Green Cess: The compensation cess could be revamped into a green cess to finance green infrastructure projects.
• Revenue Sharing: The council would need to determine the revenue-sharing mechanism between the Centre and states for such a cess.

Petroleum, Oils, and Lubricants (POL) Products:

• GST Exclusion: POL products currently remain outside the GST net.
• Rationale for Inclusion: Bringing POL products under GST would enable businesses to claim input tax credit and reduce costs.
• State Autonomy: Including POL products in GST would reduce state autonomy in taxation.

Way Forward:

• Grand Bargain: A significant bargain is needed to convince states to bring POL products under GST.
• Compensation: The proceeds from the cess could be used to compensate states for any losses due to the transition.

Key Points:

• The government plans to repay the GST compensation loan by January 2026.
• The GST Council is considering extending the compensation cess beyond March 2026.
• Continuing the cess may require a constitutional amendment.
• A green cess could be introduced to replace the compensation cess.
• Bringing POL products under GST would enable businesses to claim input tax credit but reduce state autonomy.
• A grand bargain is needed to convince states to adopt this change.