GST Council mulling Health, Clean Energy Cess: What are they?
GST Council mulling Health, Clean Energy Cess: What are they?
The Goods and Services Tax (GST) Council in India is contemplating a major overhaul of its cess structure.
The council wants to replace the existing compensation cess with two new levies—Health Cess and Clean Energy Cess. They will be imposed on items like tobacco products and coal.
This would take place after the current cess expires on March 31, 2026, as per CNBC-TV18. The proposal shall be considered by the Group of Ministers (GoM) on Compensation Cess.
Current cess set to lapse in March 2026
The compensation cess, which was introduced to compensate states for revenue losses post-GST implementation in July 2017, will lapse legally in March 2026.
It was originally scheduled to end in June 2022 but was extended to repay loans taken during the pandemic years.
The GoM has nearly reached a consensus on replacing this with the two targeted levies.
What will the new cess be imposed on?
The proposed Health Cess would be imposed on sin goods like tobacco products, while the Clean Energy Cess would target items such as coal and luxury automobiles.
These categories fall in line with the government's social and environmental priorities.
The idea behind this dual cess framework is to maintain a cess-based revenue stream for critical public health and sustainability initiatives, without extending the current compensation mechanism.
Legal challenges could complicate implementation
Despite widespread support within the GoM, legal and constitutional challenges could complicate implementation.
The GST law currently does not permit for a new cess, and any such proposal would need an amendment to the Constitution.
Legal experts have also raised questions about revenue distribution—whether it shall be shared with states or retained solely by the Centre.
If only the Indian government receives proceeds from new cesses, states may oppose this move.
Why the compensation cess was introduced
When GST was rolled out in 2017, the Centre had promised states a 14% annual revenue increase for five years.
To make up for any shortfall, a compensation cess was levied on products like liquor, cigarettes, cars, aerated drinks, and coal.
The GoM on Compensation Cess was formed by the GST Council in September last year to propose a roadmap after the existing cess expires.
Industry stakeholders request clarity
Industry stakeholders have been pressing the government for clarity on the future of the cess regime. Tax experts say a timely announcement shall help businesses adjust pricing structures, tax planning, and compliance systems in advance.