Question

The main purpose of the Goods and Services Tax (GST) compensation fund is

• A. To provide funding for infrastructure development.
• B. To provide relief to taxpayers who have paid excess tax.
  (C) To support the development of micro, small and medium enterprises (MSMEs)
  (D) To compensate states for the loss of revenue due to the implementation of GST.
• C. To support the development of micro, small and medium enterprises (MSMEs)
• D. To compensate states for the loss of revenue due to the implementation of GST.

Hint:

The name itself provides a strong clue: "GST \textbf{Compensation} Fund." The fund is designed to compensate someone for something. In the context of the federal GST structure, this compensation is from the Centre to the States for potential revenue loss.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
The question asks for the primary objective of the GST Compensation Fund, which was established as part of the GST regime in India.
Step 2: Detailed Explanation:
The Goods and Services Tax (GST) is a destination-based consumption tax that replaced many indirect taxes levied by the central and state governments. When GST was introduced, many states feared a loss of revenue as their own taxing powers would be subsumed. To address this concern and bring states on board for the reform, the central government enacted the GST (Compensation to States) Act, 2017. This act provides for a mechanism to compensate states for any loss of revenue they might incur due to the implementation of GST for a period of five years (initially from 2017 to 2022). The compensation is funded through a 'Compensation Cess' levied on certain goods.
Step 3: Final Answer:
The main purpose of the fund is to compensate states for the loss of revenue due to the implementation of GST.