Union Finance Minister Nirmala Sitharaman on Saturday (September 21, 2024) said the Goods and Services Tax (GST) Council is looking at the GST rates, item by item, for rationalisation and the process was being discussed for a long time and delayed due to several factors including the impact of COVID-19.

In an interaction with senior journalists of The Hindu Group of Publications at The Hindu’s head office in Chennai, Ms. Sitharaman, while responding to a question on rationalisation of GST, said: “It has been delayed for a long time and it’s much overdue due to various factors including the impact of COVID-19, election in some States. Now there is the seriousness, saying we need to take this up. The committee [Group of Ministers committee on rate rationalisation] is looking into it item by item.”

On a question related to GST compensation and compensation cess, she said “Everyone knows that the GST compensation cannot continue after June 30, 2022, and that is by law. So paying off the compensation in the first five years after implementation of the GST continued and ended in June 2022. The cess continues to be collected. Whether it has to continue or not and the rate and items on which the cess should be levied is being discussed in the GST Council.”

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According to her, “There are some States that want the GST compensation to continue. But, it cannot continue in the very spirit of how it was brought in. It was introduced to make sure that States don’t have any apprehensions about their revenue resources coming down to a drastically low level and that they cannot sustain themselves, after the implementation of the GST regime.”

Nirmala Sitharaman, Union Minister of Finance and Corporate Affairs speaking at The Hindu office in Chennai on September 21, 2024 | Photo Credit: M. Srinath

Ms. Sitharaman also pointed out that the GST compensation scheme was brought in at a fairly high rate. “No State was growing anywhere near 14%. Everybody who analyses the economy will know it. For instance, Tamil Nadu’s growth rate was around 6.5%, before 2017. The State would have earned around ₹4.23 lakh crore. Whereas, the State had earned ₹5.23 lakh crore, because of the compensation scheme and post that because of the GST. You [the State] are better off today. The wild allegations that come about the GST system will have to be countered with patience. But when it comes from a State government, whose Finance Minister is sitting in the [GST] Council, randomly because it politically suits them, I leave it as such. But it has no logic in it.”

She said the Constitution gives the Union government every right to levy cesses. “Though the money collected through cesses is not shared with the States directly through devolution, it goes for building roads, schools, ports and hospitals. It is perfectly constitutionally legitimate for the Centre to collect cess. It doesn’t go through the devolution which was designed by the Finance Commission, a constitutional body,” she added.