New Delhi, Sept. 5 -- The vestige of the compensation cess, which will continue on tobacco and tobacco-related items under the new Goods and Services Tax (GST) regime even after September 22, when most of the new rates are introduced, is expected to be eliminated by the end of the year after serving its purpose, a government official said. The 56th GST Council on Wednesday decided to remove compensation cess in a phased manner until the remaining liability of the back-to-back loans taken to fund state revenue losses during the pandemic period is discharged . This is expected by December this year, the official said asking not to be named. While the levy of compensation cess will end on almost all sin goods and luxury items from September 22, it will continue along with 28% GST on pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi till loan repayment and interest payment obligations under the compensation cess account are completely discharged. These tobacco products, except bidi which will be taxed at 18% in the new regime, will then move into a special 40% rate. The GST Council has empowered the Union finance minister, who is also the chairperson of the Council, to decide the actual date on this matter. According to an ICRA report, compensation cess on tobacco products varies. On cheroots and cigars, it is 21% or Rs.4,170 per thousand, whichever is higher, the report said. The levy on non-filtered cigarettes containing tobacco, of length not more than 65 mm is 5% plus Rs.2,076 per thousand. On filtered cigarettes of various lengths (rates levied as per length of cigarettes) is 5% or Rs.2,076 to Rs.3,668 per thousand. At the time of launching the GST regime, the law assured states a 14% increase in their annual revenue for five years of the transition period from July 1, 2017 up to June 30, 2022, and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal. The GST compensation cess was, however, extended from June 30, 2022 till March 31, 2026, only to retire debts taken on behalf of states to meet the revenue shortfall during the Covid period. While states have no claims for compensation from July 1, 2022, it was earlier decided that the cess will continue till March 31, 2026 to service the back-to-back loans released to states when compensation cess collection fell in 2020 and 2021 because of a slump in economic activity due to the pandemic. The 56th GST Council, however, limited the scope of the compensation cess to only tobacco and tobacco-related items, that too for a limited period, until all loan obligations are discharged. The GST Council, in its 54th meeting, had estimated that the entire liability related to compensation cess (along with retiring the back-to-back loans) would be met by December 2025....