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India to extend surcharge on taxes on luxury items, tobacco

FILE PHOTO: A man wearing a protective face shield smokes outside the Indian Coffee House after it was re-opened, after authorities eased lockdown restrictions that were imposed to slow the spread of the coronavirus disease (COVID-19), in Kolkata, India, July 2, 2020. REUTERS/Rupak De Chowdhuri

NEW DELHI (Reuters) - 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.

The next meeting of the GST council, comprising federal and state finance ministers, would be held on Oct. 12 to work out the details, she said.

The surcharge on luxury goods, which varies from 12% to 200%, is part of the national goods and services tax (GST) introduced in 2017, and was due to expire in 2022.

Tax receipts of the federal and state governments fell about 40% year-on-year in the five months to August due to the economic fallout from the coronavirus pandemic.

The Indian economy is projected to contract by about 10% in the current financial year ending in March 2021, private economists said, against the initial government estimates of about 6% growth.

The federal government, already facing a shortfall in tax receipts, has asked the states to borrow up to 1.1 trillion rupees ($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 federal 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 the southern Indian state of Kerala, referring to the central government. ($1 = 73.0890 rupees)

Reporting by Aftab Ahmed and Manoj Kumar; Editing by Alex Richardson

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