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GST rate for mobiles hiked to 18%, next meet to focus on compensation payout

The impact of COVID-19 on the economy was also discussed in the meeting, Finance Minister Nirmala Sitharaman said, adding the government is trying to assess the economic impact of the outbreak and is in talks with the industrial and the services sectors.

By: ENS Economic Bureau | New Delhi |
March 15, 2020 2:30:41 am
This year, Rs 80,000 crore has been collected as compensation cess, but states have been given Rs 1.2 lakh crore.

A tax rate hike for mobile phones to 18 per cent from 12 per cent to correct the inverted rate structure, a deadline to Infosys to resolve technological glitches by July this year, and a call for a special session by April-end to look into the legality of option of market borrowing to pay states in view of compensation cess shortfall were some of the key decisions taken in the 39th meeting of the Goods and Services Tax (GST) Council on Saturday. The impact of COVID-19 on the economy was also discussed in the meeting, Finance Minister Nirmala Sitharaman said, adding the government is trying to assess the economic impact of the outbreak and is in talks with the industrial and the services sectors.

The Council also slashed GST on maintenance repair overhaul (MRO) services for aircraft to 5 per cent from 12 per cent with full input tax credit (ITC) and change the place of supply for B2B MRO services to the location of recipient, while GST on handmade and machine-made matchsticks has been clubbed to a single rate of 12 per cent from 5 per cent and 18 per cent earlier, respectively.

Explained

Compliance measures relaxed

Several compliance-related measures were eased, even as the GST Council changed inverted rate structure by hiking tax rate for mobiles to 18 per cent, keeping the proposed correction for other sectors such as fertilisers, textiles and footwear on hold as states raised concerns over a rate hike during economic slowdown. The slowdown’s impact on revenue will also dominate the next Council meeting, where compensation cess shortfall and the option to explore market borrowing will be in focus.

“There were suggestions recalling what late Arun Jaitley had said about there can be ways that the Council can probably even borrow from the market. So all this was discussed and I have very clearly said that I am committed to giving the compensation as is being collected…shall look at how if at all the Council is allowed to borrow — who stands guarantee for it, how will it be paid, what’s the interest that will be given — all these things will have to be legally looked into. So I have told the Council today that I will have to look at all these things, get more information, legally get the opinion and then come back to the Council as to what I have in my hand. I also said if the Council have to go borrowing I will also have to see what the impact of such a thing will be on the FRBM,” Sitharaman said.

As per the data for April-February shared at the GST Council meeting, the revenue gap between the protected revenue and the revenue accrued to states has increased to 23 per cent from 14 per cent on an average. Punjab and Himachal Pradesh are among the worst performers, with the revenue gap rising to 46 per cent and 41 per cent, respectively. Northeastern states are faring better with revenue surplus, while Andhra Pradesh has slipped to a revenue gap of 13 per cent from revenue surplus of 2 per cent last year.

This year, Rs 80,000 crore has been collected as compensation cess, but states have been given Rs 1.2 lakh crore. GST authorities expect a compensation cess shortfall to be around Rs 48,000 crore this year and the compensation payout for December-January is already delayed, while only part payment has been done for October-November.

A series of compliance related measures were also announced, including waiver of late fee for delayed filing of annual returns for FY2018, FY2019 by entities with a turnover of less than Rs 2 crore. It was also clarified that interest will be levied on net tax liability from July 1, 2017 for delayed GST payments instead of gross basis for which the law will be amended accordingly to effect the change retrospectively. The FM said the Council has asked Infosys to deploy more skilled manpower, raise capacity of hardware of GST Network to ensure the system is glitch-free. The Council has asked Infosys, which has designed the GSTN, to provide a better GSTN system by July 2020, she added.

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