Rate tweaks loom as GST Council meets first time in 2022

Some States urge extension of compensation period, else moot rejig of revenue sharing

Union Finance Minister Nirmala Sitharaman chairs the 47th meeting of Goods and Services Tax (GST) Council, in Chandigarh, Tuesday, June 28, 2022. | Photo Credit: PTI

The Goods and Services Tax (GST) Council is learnt to have accepted an interim report on the rationalisation of tax rates submitted by a group of ministers (GoM) led by Karnataka Chief Minister Basavaraj S. Bommai on the first day of its two-day meeting that began here on Tuesday.  

Finance and Corporate Affairs Minister Nirmala Sitharaman chaired the proceedings of the Council, convened for the first time in 2022, and will announce the outcomes on Wednesday evening. Several important decisions are expected from the Council, the Finance Ministry said in a statement.  

While the GoM on rate rationalisation was also tasked with considering the merger of the several different tax slabs in the GST framework, a larger overhaul involving new tax slabs and increase in rates has been put off in view of concerns about high inflation. For now, the panel has mooted dropping exemptions on some items and tweaking rates for some goods and services currently plagued by an inverted duty structure.

With the GST regime completing five years this week, marking the sunset of the Centre’s promise of assured revenue levels for States to join the new indirect tax system, some representatives of Opposition-ruled States mooted an extension of this assured compensation period for another five years. Alternatively, they have mooted a change in the revenue sharing formula for GST inflows to assuage their revenue concerns. 

Calling for the continuance of the compensation regime for States for another five years, Chhattisgarh Commercial Tax Minister T.S. Singh Deo said this was particularly vital for manufacturing and mining States which were not large consumers of goods and services.

“If the protective revenue provision is not continued, then the 50% formula for Central GST and State GST should be changed to SGST 80%-70% and CGST 20%-30%,” he wrote in a letter to Ms. Sitharaman on Sunday. The Chhattisgarh minister was unable to attend the meeting due to a COVID-19 infection.

“Unless we in the GST Council unilaterally ensure the financial stability through rational revenue realisation for each and every State and Union Territory then the very concept for which the GST Council was put in place may appear to be untenable,” he concluded.

The levy of the GST Compensation Cess on certain sin goods and automobiles, used to recompense States for revenue shortfalls arising from the switch to GST, has been extended till March 31, 2026, from the original sunset date of June 30, 2022. But these collections will be used to repay special borrowings undertaken in the past two years when the COVID-19 pandemic affected cess collections.  

The Council is also expected to take a call on another ministerial group’s report on taxation of online gaming, casinos and horse racing. A GoM led by Meghalaya Chief Minister Conrad Sangma has recommended that these three sectors should be taxed at 28% instead of the current levy of 18%. A 28% rate will bring these activities on par with betting and gambling.