Cheema advocates for continuation of GST compensation regime

In a strong push for the continuation of the goods and services tax (GST) compensation regime, Punjab finance minister Harpal Singh Cheema on Monday strongly recommended the continuation of the GST compensation cess regime beyond March 31, 2026, to ensure that states can mitigate the revenue loss caused by the subsumation of various taxes into the indirect tax.
This recommendation was made by Cheema during the group of ministers (GoM) meeting on compensation cess, which he attended via video conferencing.
Cheema emphasised that the GST Council, as per the Goods and Services (Compensation to States) Act, 2017, has the mandate to recommend extending the compensation period beyond five years. He highlighted the significant and permanent revenue loss faced by Punjab due to the subsumation of the purchase tax on foodgrains into GST. This tax was a crucial contributor to the state’s revenue in the pre-GST era, he added.
The finance minister further pointed out that the rate of tax on goods under the value added tax (VAT) regime was significantly higher than the rate applicable under the GST. He said this discrepancy has resulted in considerable revenue loss for the state. He stressed that the continuation of the GST compensation cess regime is essential to address these financial challenges and ensure the fiscal stability of states like Punjab.
Cheema’s call for action reflects the broader concerns of many states that have experienced similar revenue losses due to implementing the GST. His recommendation aims to ensure that states are adequately compensated for their financial setbacks and can continue to provide essential services and development initiatives for their citizens.