economics medium MCQ

What was the primary purpose of the 'GST Compensation Cess' levied on demerit and luxury goods in India?

  1. To fund the construction of national highways
  2. To compensate states for any potential loss of revenue arising due to the implementation of GST for a transitional period of 5 years
  3. To provide subsidies to exporters facing global competition
  4. To finance the direct benefit transfers under the PM-KISAN scheme

Answer: To compensate states for any potential loss of revenue arising due to the implementation of GST for a transitional period of 5 years

When states surrendered their taxation rights to the Centre to form the unified GST market, they feared a loss of fiscal autonomy and revenue. To secure their agreement, the Centre guaranteed a 14% annual growth in their tax revenues for five years (2017-2022), funding this guarantee through a special Compensation Cess levied on luxury, sin, and coal products.

Topic Public Finance - GST
Exam Relevance UPSC Prelims, SSC CGL
More economics Questions Back to all questions