GST Board Meeting: Item Rate Changes, States Compensation Agenda

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The almighty GST Council at its meeting in Chandigarh this week is likely to make changes to the Goods and Services Tax (GST) rates on a handful of items and could follow the panel’s recommendations. ‘officers to maintain the status quo in the rates of more than 215 items.

The 47th meeting of the GST Council, led by Union Finance Minister Nirmala Sitharaman and including representatives from all states and UT, is scheduled for June 28-29. The Council is meeting after a six-month hiatus.

Along with the rate rationalization, the Council is expected to see a heated discussion over state payouts, with opposition-led states aggressively pushing for its continuation beyond the 5-year period that ends in June.

The main changes proposed by the Committee of Officers or the Adjustment Committee in the tax rates are a flat rate of 5%.

Currently, these properties are subject to tax rates of 12 and 5%.

The committee also recommended reducing the GST rate on cable car journeys to 5% from 18% currently with the ITC, as Himachal Pradesh submitted this request to the GST Board in September last year.

He also suggested that the GST rate on ostomy appliances (including pouch or bridle, ostomy adhesive paste, barrier cream, irrigator kit, sleeves, belt, microporous bands) be reduced to 5%, against 12% currently.

In addition, tax rates on treated wastewater will likely be reduced to “zero”. Currently, an ambiguity in the wording of GST rates has led to two orders from the Advance Ruling Authority (AAR) stating that treated wastewater is subject to an 18% GST rate.

The assembly committee also recommended that the tax rate be increased on Tetra Pak to 18%, from 12% currently.

In addition, a clarification would be issued on the GST rates on electric vehicles, to indicate that electric vehicles, whether battery-equipped or not, would be subject to a tax rate of 5%.

In addition, Polarilex Gum nicotine, which is commonly used to help adults quit smoking, attracts 18% GST, the committee said.

The committee gives its recommendation on the tax rates, after analyzing the requests of the stakeholders, at each meeting of the Board. This time, he suggested that the status quo of tax rates be maintained for more than 215 goods and services.

The GST Council will also be presented two reports from the Group of State Finance Ministers.

The GoM on rate rationalization will present its interim report suggesting a correction of the reverse fee structure and the removal of certain exemptions, while the other panel responsible for deciding rates on casinos, horse racing and online gambling line is likely to suggest the highest 28% slab for such activities.

Along with streamlining rates, the Council is likely to see opposition-led states push aggressively to keep revenue loss compensation. The Center will make its case to end compensation in June, as promised when the GST was launched, citing a tight revenue position.

After the 45th meeting of the GST Board in Lucknow in September last year, the Union Finance Minister said that the scheme for compensating States for loss of revenue resulting from the subsumption of their taxes such that the VAT in the GST uniform national tax would end in June 2022.

However, the compensation tax, levied on luxury and demerit goods, will continue to be collected until March 2026 to repay loans that were made in 2020-21 and 2021-22 to compensate states for the loss GST revenue.

The Goods and Services Tax (GST) was introduced in the country effective July 1, 2017 and states were assured of compensation for loss of revenue arising from the implementation of the GST for a period of five years.

Although protected state revenues increased by 14% in compound growth, tax collection did not increase in the same proportion, COVID-19 further widened the gap between protected revenues and actual revenues, including reduction of tax collection.

In order to bridge the lack of resources of states due to the short-term release of compensation, the Center has borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 under form of back-to-back loan to meet part of the shortfall in the collection of assignments.

The Center has released the total amount of GST compensation payable to states through May 31, 2022.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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