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47th GST Council meet underway: To discuss rate rationalisation measures, review of exemptions, system reforms

With high inflation rate, any major rejig of tax slabs will not find favour in near term, instead the GST Council is likely to rely heavily on a series of other measures to boost revenues

Written by Aanchal Magazine | Chandigarh |
Updated: June 28, 2022 5:24:19 pm
States, especially Opposition-ruled states, are expected to raise demand for an extension of the compensation regime to bridge revenue shortfall beyond June 2022. (Representative image)

The 47th Goods and Services Tax (GST) Council began its Day 1 meeting on Tuesday. States are expected to raise demand for extending the compensation regime. The Council will discuss rate rationalisation measures, review of exemptions and system reforms. With high inflation rate, any major rejig of tax slabs will not find favour in the near term, instead the Council is likely to rely heavily on a series of other measures to boost revenues — correction of inverted duty structure for items such as LED lamps, printing/drawing ink, knives, spoons, power-driven pumps, solar water heater, finished leather composite works and withdrawal of exemption for items such as pre-packaged and labelled food items such as wheat flour, puffed rice, curd/lassi/buttermilk, paneer and chilled meat/fish.

Demand of states

States, especially Opposition-ruled states, are expected to raise demand for an extension of the compensation regime to bridge revenue shortfall beyond June 2022. Last week, the Finance Ministry notified the extension of the levy and collection of compensation cess till March 2026, in line with an earlier approval accorded by the GST Council last year for repayment of loans meant to compensate states for the five-year period since July 2017 rollout and not for any extension of compensation to states beyond June 2022.

“GST has been a good idea but badly implemented. Micro-level management in implementation did not happen. Because of that, states are in a very bad position. Extension of compensation scheme should happen,” Delhi’s Finance Minister Manish Sisodia told The Indian Express.

“Centre is not being asked to pay from its resources. The compensation funds were supposed to come from levy of cess. Till effective implementation of GST happens, the way it was envisaged, the compensation regime should be continued. States surrendered most of their taxation rights, VAT was one of the biggest components for them. 14 per cent growth was promised, which is not being achieved and it’s coming to an end. This is not done,” he added.

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Kerala Finance Minister KN Balagopal on Tuesday said states have lost with the rollout of GST and compensation regime should be extended.

Ministerial panels’ recommendations

The Council is also expected to discuss interim recommendations of a ministerial panel on rate rationalisation including levying a tax of 12 per cent on hotel rooms costing below Rs 1,000/day which are presently exempt, increasing rate on manufacturing services of leather goods, clay bricks from 5 per cent to 12 per cent, hiking GST on LED lamps, ink, knives, blades, power-driven pumps, spoons, forks, dairy machinery from 12 per cent to 18 per cent and bringing in pre-packaged food items including rice, atta, curd, lassi, puffed rice at par with branded food items with a tax rate of 5 per cent. Additionally, it will discuss the Fitment Committee’s proposal to levy tax on the margins made by tour operators at a suitable rate along with a suggestion to make e-way bill mandatory for intra-state movement of gold above a threshold of Rs 2 lakh.

More measures for compliance to plug revenue leakages are in the offing with a greater scrutiny to be over high-risk taxpayers. At the time of registration, measures such as better verification through use of mandatory biometric authentication for high-risk taxpayers, inclusion of electricity bill data, real-time validation of all bank accounts against a particular PAN and geo-tagging have been suggested by a ministerial panel.


Identifying risky behaviour of the new registrants/applicants using artificial intelligence and place the information on the back office for the field officer to carryout mandatory physical verification of these taxpayers along with real-time validation of bank accounts through integration of GST system with NPCI and inclusion of electricity bill metadata (CA No.) as a data field during registration by new taxpayers are some of the measures going to be discussed in the Council meeting.

The Council will also discuss rate hike suggestions from the fitment committee for items ranging from cut and polished diamonds (1.5 per cent from 0.25 per cent), tetra packs (18 per cent from 12 per cent) and rate cut for ostomy appliances including waterproof pouch for collecting waste from the body (nil from 12 per cent). The fitment committee has also recommended a uniform 5 per cent rate for orthopaedic implants (trauma, spine and arthroplasty implants). On the issue of taxation of virtual digital assets including cryptocurrency, the fitment committee has recommended deferring the decision and suggested that states of Haryana and Karnataka shall study all aspects and submit a paper in due course.

Another ministerial panel’s recommendation is to levy 28 per cent GST on online gaming, casinos and horse racing are expected to be discussed in the Council meeting.


Revenue growth concerns

Rate rationalisation measures under GST are being considered as the compensation regime — under which states were offered compensation for revenue loss below the guaranteed compounded 14 per cent rate — comes to an end in June after five years of the rollout of the indirect tax regime.

“Broadening the base is the only option, you cannot raise rates. Compliance has to be increased using technology to identify revenue leakage, bogus returns, which is not getting caught in the system at present,” Sisodia, who was a member of the GoM on system reforms, said.

In 2021-22, only five out of 31 states/UTs — Arunachal Pradesh, Manipur, Mizoram, Nagaland, Sikkim — registered a revenue growth higher than the protected revenue rate for states under GST. Puducherry, Punjab, Uttarakhand, Himachal Pradesh and Chhattisgarh have recorded the highest revenue gap between the protected revenue and post-settlement gross state GST revenue in 2021-22. Under GST, as per cent the Goods and Services Tax (Compensation to States) Act, 2017, the states were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to implementation.

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First published on: 28-06-2022 at 05:10:56 pm

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