What was the primary purpose of the 'GST Compensation Cess' levied on demerit and luxury goods in India?
- To fund the construction of national highways
- To compensate states for any potential loss of revenue arising due to the implementation of GST for a transitional period of 5 years
- To provide subsidies to exporters facing global competition
- 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.