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The Centre expects to mop up as much as Rs 55,000 crore by levy of cess, including a big chunk from demerit and luxury goods, during the 9-month period of the current financial year (FY) after goods and services tax (GST) is rolled out from July 1.
The amount to be raised through cess on coal, as well as luxury items and sin goods, will be used for compensating states for revenue shortfall following the implementation of the new tax regime.
According to the revenue department's estimates, Rs 22,000 crore is expected to come from cess on coal, lignite and peat in the July-March period of current fiscal. Cess on tobacco is likely to yield around Rs 16,000 crore, a source told PTI.
The remaining amount in the 'Goods and Services Tax Compensation Fund' will come from cess on pan masala, aerated drinks and motor vehicles, the source added.
The revenue department is hopeful that funds raised through different kinds of cess would be sufficient to take care any revenue shortfall that the states might face on account of GST roll-out.
In an interview to PTI earlier, Revenue Secretary Hasmukh Adhia had said: "Roughly, we would think that whatever compensation is required for current year it would be made good from the cess income which we will get this year and cess tables have been arranged accordingly."
"That is why we have levied cess even on small cars. The small cars have been kept within cess because there is an existing incidence on small cars and we didn't want to lose some revenues there".
Internal calculations of the department indicate that there would be a surplus in the compensation fund at the end of March 2018 since big states might not see any shortfall in revenue and it is only the small states which may need to be compensated.
"The big manufacturing states are anyways consumers and we do not anticipate any shortfall in the consumption even in producing states since majority of the commodity would become less expensive after roll out of the GST. We expect revenues of most states to increase by more than 14 per cent," a source said.
The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising his counterparts from states, has already decided on the formula for payment of compensation to states for any loss of revenue from implementation of GST in the first five years of implementation of the new tax regime.
It had agreed on keeping base year for calculating the revenue of a state at 2015-16 and considering a secular growth rate of 14 per cent for calculating the likely revenue of each state in the first five years of implementation of GST.
In case there is sufficient surplus in the compensation fund at the end of March 2018, the source said "the government will review its strategy which may include a reduction in cess and also cut in tax rates for certain goods and services".
As per the Goods and Services Tax (Compensation to States) Act, 2017, any residual amount left in the compensation fund after five year compensation period is to be shared equally between the Centre and the states.
The Centre and states have already agreed to impose cess on 55 demerit and luxury goods under the GST regime, over and above the peak tax rate of 28 per cent.
While pan masala containing gutkha will face a hefty 204 per cent cess, scented zarda and filter khaini will attract 160 per cent cess. On tobacco and tobacco products, the cess will vary from 71-204 per cent.
Aerated drinks and lemonade will attract 12 per cent cess, while for filter cigarettes exceeding 65 mm but not exceeding 70 mm the levy is 5 per cent plus Rs 2,126 per thousand sticks.
Besides, a clean energy cess will be levied on coal, lignite and peat production at the rate of Rs 400 per tonne.
Small cars of less than four meter length and with petrol engine of up to 1200 cc will attract 1 per cent cess on top of the peak rate.
Small diesel cars with engine of less than 1500 cc will be charged 3 per cent cess.
Mid-sized cars, SUVs and luxury cars will all attract 15 per cent cess, same as that for buses and vans that can carry more than 10 persons.
Hybrid cars of more than 1500 cc engine would also attract 15 per cent cess.
