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GST compensation plan may come with riders

NEW DELHI: The Centre is looking to initiate a discussion on correcting the anomalies in the structure and revenue augmentation, along with a proposal to revise the compensation formula when the GST Council meets in Lucknow on Friday.
Although the agenda is not focused on compensation, sources told TOI inverted duty structure for segments such as textiles, footwear and fertiliser is up for discussion even as the all-powerful panel comprising Union and state finance ministers is expected to opt for a new mechanism for taxing bricks, with a lower levy for those opting out of the input tax credit (ITC) mechanism, as well as mentha, while leaving the contentious issue of pan masala.
“Compensation cannot be discussed in isolation. we also need to look at plugging leakage of revenue and revenue augmentation to bolster collections,” said a government source, indicating that the Centre is going to strike a hard bargain.

The Centre had assured revenue to states if annual growth is under 15% during the first five years of implementation, which ends next June. States are expecting a continuation of compensation for a few more years, arguing that they have given up their right to tax.
Although inverted duty structure for textiles, footwear and fertiliser, where inputs attract higher taxes than the final product, have been on the agenda, the states have sought to avoid discussions. Increasing taxes on certain textiles products and footwear may not be politically palatable, especially when ministers meet in poll bound Lucknow, but tax officials argue that there is a need to correct the anomaly, which affects businesses.
Tweaking the GST on fertiliser may be seen to be doing something that is not pro-farmer, but officials pointed out that the burden in any case is borne by the Centre through subsidy, which is rising.
What has also proved to be a divisive issue even for a specially constituted group of ministers is proposal for capacity-based tax for pan masala, a sector that is seen to be prone to duty evasion. With the panel still split, the GST Council may postpone a decision.
But when it comes to bricks, where hosts UP have an interest, the Council is expected to agree to a structure allowing 5% levy without the benefit of ITC, and 12% for those who agree to credit for taxes paid on inputs.

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