Economy

GST Council meeting | Extend compensation period, urge States

States have sought an extension of the compensation mechanism for loss of revenue. File.

States have sought an extension of the compensation mechanism for loss of revenue. File. | Photo Credit: PTI

From July 18, tax hikes will kick in for over two dozen goods and services, ranging from unbranded food items, curd and butter milk to low-cost hotels, cheques and maps, the Goods and Services Tax (GST) Council decided after a marathon two-day meet that concluded on Wednesday.

At the same time, tax rates will be lowered for about half a dozen goods and services, including ropeways and truck rentals where fuel costs are included, and scrapped for products imported by private vendors for use by defence forces.

At the meeting, over a dozen States wanted the GST compensation to continue for some more time.

The upward changes in GST levies include tweaks for 17 goods and services, including LED lights, solar water heaters and writing inks, to correct anomalies that had crept in from inverted duty structures where tax rates on inputs were higher than the final product. Separately, the tax rate on Tetra Pak has been raised from 12% to 18%, while cut and polished diamonds will now attract GST at 1.5% instead of the prevailing 0.25%.

The GST rate on splints for treating fractures, intraocular lens for those with failing eyesight and ostomy appliances will be reduced from 12% to 5%. The Council has also clarified that Assisted Reproductive Technology and In Vitro Fertilization (IVF) services are covered under the health care services for the purpose of GST exemption, but stem cell preservation services will no longer be tax-free. Hospital room rents over ₹5,000 a day, excluding patients in intensive care units, shall now be taxed at 5%.

Exemptions and concessional rates on several items shall be withdrawn, based on recommendations of a group of ministers (GoM) led by Karnataka Chief Minister Basavaraj Bommai that were accepted in ‘toto’ by the Council, said its chairperson and Union Finance Minister Nirmala Sitharaman.

High inflation

Responding to concerns that the GST rate changes could feed into the prevalent high inflation, Ms. Sitharaman said inflation was everyone’s concern and the Council’s decisions were not taken in isolation. “The elected representatives who are part of the Council are conscious of inflation,” she noted.

Steering the first ‘regular’ meeting of the Council since September 2021, Ms. Sitharaman said reports of three other ministerial groups were also considered at this meeting, of which two had been ratified.

While Mr. Bommai panel’s suggestions on exemptions and tax tweaks for some items were accepted, the GoM has been granted three more months to recommend the larger overhaul of GST rates which would include a possible reduction in the multiple tax slabs and higher tax rates to raise revenue collections from the indirect tax regime that completes five years this week.

While the GoM report constituted the core agenda of the two-day meet, the Finance Minister said one ‘extra agenda item’ also came up — States’ concerns about the sunset of assured revenues through GST compensation, from July 1, which were heard out in spurts through Wednesday’s deliberations.

“A few States said they would like the GST compensation to continue today, and more States spoke up later, suggesting that there can be an extension for a few years, if not five years. We have heard them out,” Ms. Sitharaman said.

About 16-17 State representatives in the Council spoke on the GST compensation issues, said Revenue Secretary Tarun Bajaj, of which about 12-13 sought an extension of the assured compensation period, while three-four spoke about the need to wean themselves away from the dependence on assured revenues.

Changes in IT systems

Modifications in GST’s IT systems to bolster compliance and crack down on tax evasion have been okayed, based on recommendations of a GoM led by Maharashtra Deputy Chief Minister Ajit Pawar. These include a new risk-based registration system that will be put in place over the next three to six months to curb the menace of fake invoicing by firms that crop up and disappear soon after, Mr. Bajaj said.

Suggestions by another GoM led by Kerala Finance Minister K.N. Balagopal on the movement of gold and precious stones were also accepted by the Council, enabling States to decide on the best way to implement an e-way bill system for intra-State movement of gold worth over ₹2 lakh.

To resolve the long-pending issue of constituting a GST Appellate Tribunal, the Council has decided to form a fresh Group of Ministers whose report will be taken up at its next meeting which the Finance Minister said would be held during the first week of August in Madurai.

The taxation regime for online gaming, horse racing and casinos, whose review had been tasked to a GoM led by Meghalaya Chief Minister Conrad Sangma, will also be taken up during the August meeting, as Goa’s Finance Minister raised several concerns about the GoM’s current recommendations pertaining to casinos.

“We have decided that the GoM should hear stakeholders from all these sectors again, including horse racing and online gaming, and submit a report by July 15,” Ms. Sitharaman said.


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Printable version | Aug 4, 2022 4:59:26 pm | https://www.thehindu.com/business/Economy/about-dozen-states-seek-extension-of-gst-compensation-no-decision-taken/article65582122.ece