The Goods and Services Tax (Compensation to States) Bill, 2017 has been introduced before the Lok Sabha in March 2017. The said Bill provides for compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax, for a period of five years, in pursuance of the provisions of the Constitution (101st Amendment) Act, 2016.
The term “compensation” is defined as, an amount in the form of Goods and Services Tax compensation. For the purpose of calculating the compensation amount payable in any financial year during the transition period, the financial year ending 31st March, 2016 (FY 2015-16), shall be taken as the base year. The revenue to be compensated shall consist of revenues from all taxes levied by the States which are now proposed to be subsumed under the Goods and Services Tax, as audited by the Comptroller and Auditor General of India (C&AG). The base year revenue shall be the sum of the revenue collected by the State and the local bodies on account of taxes levied by the respective State or Union and net of refunds; the value added tax, sales tax, purchase tax, tax collected on works contract, other tax levied by the concerned State; the central sales tax; the entry tax, Octroi, local body tax; the taxes on luxuries, entertainment tax, amusement tax, taxes on betting and gambling; the taxes on advertisement; the duties of excise on medicinal and toilet preparations levied by the Union but collected and retained by the concerned State Government; any cess or surcharge or fee leviable and imposed by the respective State or Union.
The amount of revenue foregone on account of exemptions or remission given by the said State Governments to promote industrial investment in the State, shall be included in the total base year revenue of the State. In respect of any State, if any part of revenues which are not credited in the Consolidated Fund of the respective State, the same shall be included in the total base year revenue of the State. The revenue collected shall not include the sale or purchase tax or any cess levied or imposed on such transaction by the State Government on the sale or purchase of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption; and the entertainment tax levied by the State but collected by local bodies.
The projected nominal growth rate of revenue subsumed for a State during the transition period shall be fourteen percent per annum. The projected revenue for any year in a State shall be calculated by applying the projected growth rate over the base year revenue of that State (1+ Growth Rate/Base year Revenue) [Current year-Base year].
The compensation shall be payable to any State during the transition period i.e. period of five years from the date on which the State Goods and Services Tax Act of the concerned State comes into force. The compensation payable to a State shall be provisionally calculated and released at the end of every two months period, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by C&AG. In case if any excess amount has been released as compensation to a State in any financial year, during the transition period, such amount so released shall be adjusted against the compensation amount payable to such State in the subsequent financial year.
The proceeds of the cess on intra-State supplies and inter-State supplies of goods or services or both and such other amounts as may be recommended by the Council, shall be credited to a non-lapsable Fund known as the Goods and Services Tax Compensation Fund. All amounts payable to the States shall be paid out of the Fund. 50 percent of the unutilised amount of the Fund at the end of the transition period shall be transferred to the Consolidated Fund of India as the share of Centre, and the balance fifty percent shall be distributed amongst the States in the ratio of their total revenue from the State tax or the Union territory tax, as the case may be, in the last year of the transition period.