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Thursday, August 18, 2022

At least 12 states say continue GST compensation, no decision taken

States were guaranteed compensation for five years till June 2022 at a compounded rate of 14 per cent (with 2015-16 as the base year) to make up for any losses due to the new tax regime that rolled out in July 2017.

Exemptions will also be withdrawn for pre-packaged and pre-labelled food items such as grains, curd, lassi, paneer, jaggery, wheat flour, puffed rice, buttermilk and meat/fish (except frozen).

At least a dozen states demanded that compensation for losses due to implementation of the Goods and Services Tax be extended at the GST Council on Wednesday, but the two-day meeting concluded without any decision on the issue. States were guaranteed compensation for five years till June 2022 at a compounded rate of 14 per cent (with 2015-16 as the base year) to make up for any losses due to the new tax regime that rolled out in July 2017.

In its 47th meeting, the GST Council discussed recommendations of four ministerial panels — on rate rationalisation, on movement of gold and precious stones, system reforms, and casinos, horse racing and online gaming. A decision on levying a 28 per cent tax on casinos, online gaming, horse racing and lottery, has been deferred pending more consultations with stakeholders, Union Finance Minister Nirmala Sitharaman said.

It has been decided that the inverted duty structure will be corrected for a host of items translating into a rate hike for household items such as LED lamps, printing/drawing ink, power driven pumps, Tetra Pak to 18 per cent from 12 per cent, for solar water heaters, finished leather to 12 per cent from 5 per cent and for cut and polished diamonds to 1.5 per cent from 0.25 per cent. Among services, 18 per cent GST will be levied for issue of cheques.

Exemptions will also be withdrawn for pre-packaged and pre-labelled food items such as grains, curd, lassi, paneer, jaggery, wheat flour, puffed rice, buttermilk and meat/fish (except frozen). Such food items will now be taxed at 5 per cent, at par with branded items. Further, refund of accumulated input tax credit will not be allowed on goods such as edible oil and coal. Exemptions were also withdrawn for room rents: a 12 per cent GST will now be levied on hotel rooms with rent up to Rs 1,000 a day and a 5 per cent GST will be levied on hospital room tent above Rs 5,000 per day (excluding ICU).

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GST rate has been reduced for ostomy/ orthopaedic appliances from 12 per cent to 5 per cent and transport of goods and passengers by ropeways from 18 per cent to 5 per cent with input tax credit. These rate changes will be effective July 18. The GoM headed by Karnataka Chief Minister Basavaraj Bommai has been given a three-month extension for rate rationalisation measures including tweaking the tax slabs.

“Technology may correct anomalies for inefficiencies and therefore may have as possible impact on revenue collection. But the revenue neutral rate of the RBI study has been breached to the disadvantage of the system…that calls for a correction,” Sitharaman said.

On the inflation impact of such rate changes, she said, “All ministers (in the Council) are aware. They are all looking at the system. So, decisions taken by the Council are not as though taken in isolation. Elected representatives who are part of the Council are fully conscious,” she said.

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On the valuation mechanism for taxing casinos, a Group of Ministers headed by Meghalaya Chief Minister Conrad Sangma has been asked to consider submissions of stakeholders again and submit its report by July 15, Sitharaman said. The GST council will meet again in the first week of August to decide on the issue along with taking up discussion on setting up of an appellate tribunal.

The GoM had recommended that online gaming should be taxed at the full value of the consideration, including the contest entry fee paid by the player on participating in the game. In the case of race courses, it had suggested that GST be levied on the full value of bets pooled in the totalisators and placed with the bookmakers. It also recommended that no distinction be made on grounds of game of skill or game of chance for the purpose of the levy of GST and should be taxed at the highest rate of 28 per cent.

The Council waived off the requirement of mandatory registration under CGST Act for persons supplying goods through e-commerce operators below the exemption threshold of Rs 40 lakh turnover for goods not making any inter-state taxable supply. This is likely to be effective January 2023. The GoM on system reforms has suggested extra measures for physical verification at the time of registration for high-risk taxpayers including biometric authentication, geo-tagging, use of electricity data and real-time monitoring of bank accounts.

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On the compensation issue, Sitharaman said finance ministers and other ministers of 16 states spoke, of which 3-4 spoke of evolving their own revenue stream to break from the compensation mechanism, Sitharaman said.

“A few states before lunch today said they would like the compensation to continue for some time, even as few other states said that yes, it is a question of coming out of the pandemic, but they have to stand on their feet… There were broadly statements being made with a sense of whether compensation can be continued, if not for five years, for a few years,” Sitharaman said.

“There were 16 or 17 states that demanded that the GST compensation should be extended. Of this, there were 3-4 states that said that they have to stand on their own,” she said.

“Some of them said we have to work on our systems to wean ourselves away and not be dependent on GST compensation,” Revenue Secretary Tarun Bajaj said.

States/ UTs such as Kerala, West Bengal, Tamil Nadu and Delhi asked for an extension of the GST compensation beyond June. “Which state doesn’t want (compensation extension beyond June?) Karnataka and Goa also asked for compensation (extension). I don’t know of any single state that hasn’t asked for an extension of compensation…if GST Council is the deciding authority, then on what basis can a decision be taken outside the GST Council?,” Tamil Nadu Finance Minister Palanivel Thiaga Rajan said.

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As per data on revenue growth collated for the Council meeting, the all-India average shortfall between the protected revenue and the post settlement gross SGST revenue was 27.2 per cent in 2021-22 as against 37.9 per cent in 2020-21. 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.

First published on: 30-06-2022 at 04:10:09 am
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