One of the experts in market studies and industry research stated that the Cess which is introduced in the GST for compensating the loss of the states can possibly be dropped after five years in the lieu of the structured tax system which will otherwise fulfil the revenue of state government.
Newly coined cess in the Goods and services tax is levied on the demerit goods and cars for the compensation of state governments after the centralization of tax authorities. The cess which is ranging from 1 to 290 percent is applicable to five years as of now and will require discussion for further execution of it.
A government official stated that “The GST Council at that point in time (five years later) will decide whether to abolish the cess or to make it part of the GST rate.” The cess is charged upon the highly rated items, such as aerated drinks cars which are already brimming with 28 percent GST.
The cess introduced in the GST was a highly debatable topic when implemented, and several business houses raised their voice when the GST Council asked the central government to further increase cess on various items. The council on 5 August stated that there must be increase in the cess and denoted that, “maximum ceiling of cess leviable on motor vehicles to 25% instead of the present 15%”.
While on the other side, car manufacturers claimed that revision of cess rate and that too increased one, will make an adverse impact on the government’s ‘Make in India’ initiatives and will also steep hike the prices.
The central government however cleared that the GST Council has only made an application submitted to request the ceiling of the cess to be raised from 15 percent to 25 percent. The feasibility of the increase will be reviewed and decided in the next meeting scheduled on 9th September. This enabling provision will be discussed upon various angles and its timing with the extent of expansion and then only it will be decided for further implementation.
According to the provision, the compensation of the states is taken on the basis of all the products and services which are subsumed under the GST will expand at the rate of 14 percent per year and then after any loss will be compensated with the cess collected.