Compensation of revenue loss due to implementation of the goods and services tax (GST) by states are not going to put a burden on central government finances, said Finance Secretary Ashok Lavasa. “Now, you have a system by which additional burden of compensating the states is not being passed to consumers in a way it would have otherwise passed on in terms of taxes. So, this is very reasonable arrangement that has been agreed to keeping in view the interest of consumer and state governments,” he said.
It also enables the central government to set apart a fund by which states will be compensated, he said.
About Rs 50,000 crore will be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year beginning April 1.
The last GST Council meeting headed by Finance Minister Arun Jaitley reached a consensus on the way states are to be compensated for any loss of revenue from implementation of the new indirect tax regime from April 1, 2017.
The base year for calculating the revenue of a state will be 2015-16 and secular growth rate of 14 per cent will be taken for calculating the likely revenue of each state in the first five years of implementation of GST.
States getting lower revenue than this will be compensated by the Centre.