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Cess should not ideally be used for compensation: Drabu

As the GST Council opted for the Centre's proposal to fund compensation through a cess over the peak rate on some luxury and sin items, Jammu and Kashmir finance minister Haseeb Drabu said the cess should not ideally be used for this purpose.

He told Business Standard that if it were a rate, then revenue would get shared with states

Drabu, however, clarified that if collections from the cess is greater than compensation to states, the Centre will have to give the remaining amount to states.

According to rough estimates, the Centre will need Rs 50,000 crore a year to compensate states for revenue loss due to GST. This would be funded by the cess over the peak rate of 28% on tobacco, pan masala, luxury cars and aereated drinks and the clean energy cess.

Kerala had instead proposed 40% tax rate on these items to fund the compensation.

Drabu said Tamil Nadu and West Bengal also had similar views.

He said the GST Council will take up the issue of administrative control on assessees on Friday. Earlier, the Centre and states had agreed that the latter would have sole control over businesses having annual turnover of Rs 1.5 crore. Both the Centre and states were to have control above this, called cross empowerment in technical jargon.

For services, it was decided that the Centre will have sole control till the time state officials get skills on service tax area.

That agreement broke down after a few states demanded control over some service tax such as entertainment tax as well.

After that the Centre is likely to propose cross empowerment for it and states for goods and services without any threshold.

Drabu said all options are on table in this regard, though the issue is tricky to resolve.

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