The GST Council broke its tradition of taking decisions by consensus at its 38th meeting on Wednesday, with a first time vote on a proposal to tax all lotteries at the uniform rate of 28%. After Kerala pushed for a division, States voted 21-7 in favour of the proposal. There were no proposals or discussion regarding overall GST rate changes at the meeting, said Finance Minister Nirmala Sitharaman. A presentation on revenue augmentation made by State and Central officials contained data and projections of revenue collection and compensation cess collection, but did not make any suggestions to increase or cut rates, she said. The Council ultimately decided the issue needed further study and discussion before any decision is taken.
There have been widespread concerns about the shortfall in tax revenue at a time of economic slowdown and lower consumption. In the first eight months of this financial year, only about 50% of GST collection targets and 60% of compensation cess collection targets have been achieved.
Speaking to journalists as he left the meeting, West Bengal Finance Minister Amit Mitra said that the Centre’s revenue projections indicated that it would run out of money to compensate states by February 2020. He also worried that social sector spending would be cut as a result. According to sources present in the meeting, Delhi Finance Minister Manish Sisodia also took the Centre to task during the meeting, asking how the state is expected to govern when compensation cess payments are delayed.
“I have heard the concerns of States,” said Ms. Sitharaman. “In the Council and in the Rajya Sabha, I have explained in detail about how we remain committed to cooperative federalism and also to honour the promises given on GST.”
With regard to lotteries, there is a dual rate regime at present, with state-run lotteries taxed at 12%, while state-authorised lotteries (run by private players) face a 28% tax rate.
“There was an extended debate on the topic. Every attempt was made to keep that set tradition [of decisions by consensus] alive, every attempt was made to convince based on the opinion-making in the house,” Finance Minister Nirmala Sitharaman told journalists after the meeting. “But eventually, the Council was reminded that the rules allow [voting] and that tradition is not part of the rulebook, and the rules is what should govern the running of the Council.”
She added that the vote had been taken “on a request of one member”. Several people present in the meeting confirmed that it was Kerala Finance Minister Thomas Isaac who pushed for the vote. Maharashtra and Puducherry were among the states who opposed the proposal along with Kerala, concerned about losses to state revenue, sources said. However, the vote went in favour of the proposal and a uniform 28% tax rate on lotteries will come into effect from March 1, 2020.
The Council decided to waive the late fee for GSTR-1 taxpayers who have not filed returns from July 2017 to November 2019 if all the returns are filed by January 10, 2020. If this deadline is missed, then e-way bills will be blocked for defaulters, said Revenue Secretary Ajay Bhushan Pandey. In view of the situation in Jammu and Kashmir and the northeastern states, tax filing deadline for November has been extended to the end of the year in those areas. Other measures have been taken to check the menace of fake invoices.
In order to facilitate the setting up industrial parks, the Council has decided that all entities with 20% ownership by central or state governments will be exempt from GST payable for long-term land leases from January 1, 2020. Earlier, only entities with a 50% government stake were exempt. It also imposed a uniform tax rate of 18% on woven and non-woven bags from January 1, 2020.