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Chandigarh: The Goods and Services Tax (GST) Council is “informally" discussing the demands from several state governments that their indirect tax reform-related revenue losses be compensated beyond June when the current scheme expires, said a person aware of the development.

The Council led by union finance minister Nirmala Sitharaman is debating on the issue on the second day of its meeting currently underway in Chandigarh. “This matter was been on the agenda. It is being discussed informally," said the person who asked not to be named. It remains to be seen whether the Council reaches an agreement on the issue at the end of the day.

The current scheme of compensation, which ran for five years since the inception of GST in July 2017, expires at the end June. States have asked for continuing with the scheme for up to five years. The demand for an extension has grown louder at a time when many states are facing financial difficulties due to the covid impact on their economies.

GST cess collected from products like automobiles, tobacco and aerated drinks, have seen an improvement in recent years. Centre collected 1.05 trillion by way of this cess in FY22 and is expected to collect 1.2 trillion in current fiscal. In the first year of pandemic-- FY21, Centre had collected a little over 85,000 crores by way of cess. Centre has to now service the debt of 2.69 trillion borrowed in FY21 and FY22 to give liquidity support to states, using proceeds of the cess to be collected upto March 2026. Last week, the Centre had extended it from 1 July to 31 March, 2026.

The provision for protecting states’ revenue comes to an end by 30 June and this must be continued for at least another five years because particularly mining and manufacturing states are not consumers suffer revenue losses, Chhattisgarh commercial taxes minister TS Singh Deo wrote to union finance minister Nirmala Sitharaman on Monday. Kerala finance minister K.N Balagopal said in an interview on Tuesday that the state expects a five-year extension of the compensation scheme. Punjab has been seeking an extension as the state suffered losses due to subsuming its purchase tax on farm produce into GST five years ago.

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