India will extend a surcharge on taxes on luxury goods including cars and tobacco products beyond 2022, under plans to help states repay loans raised to meet revenue shortfalls in the current fiscal year, the finance minister said on Monday.
“The GST council has approved to extend the cess(surcharge) beyond five years,” Nirmala Sitharaman told reporters after a virtual meeting with state finance ministers.
Tax receipts of the central and state governments fell about 40 per cent year-on-year in the five months to August due to the economic fallout from the coronavirus pandemic.
The economy is projected to contract by about 10 per cent in the current financial year ending in March 2021, private economists said, against the initial government estimates of about 6 per cent growth.
The central government, already facing a shortfall in tax receipts, has asked the states to borrow up to Rs 1.1 lakh crore ($15.05 billion) from the market in the current fiscal year ending in March 2021, as the surcharge collections would not be sufficient to compensate them.
Many opposition-ruled states have opposed the move, saying it is up to the central government to meet the shortfall by borrowing itself.
“Ten states demand that full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow,” said Thomas Issac, finance minister of Kerala, referring to the central government.