GST Council Meeting: What's On Agenda This Week

The 47th Goods and Services Tax Council meeting this week is likely to deliberate on key issues such as extension of GST compensation, e-way bills for gold and the fitment committee suggestions on rate rationalisation, BQ Prime has learnt.

The meeting is scheduled on June 28 and 29 in Chandigarh. This is the first full session since September 2021, barring an emergency meeting called on Dec. 31 with a single-point agenda of rolling back the correction in inverted duty structure for textiles.

This meeting is also the first after the Supreme Court said the council's recommendations are not binding on the union and states and only hold a persuasive value. The verdict, Revenue Secretary Tarun Bajaj had then said, only reiterated the GST law and will not affect the working of the governmental body.

Here are some of the key issues the council is likely to discuss:

When the GST was instituted in 2017, states were assured compensation for the loss of revenue arising from its implementation. The additional revenue support was assumed at a yearly compounded growth rate of 14% for five years.

This support, guaranteed by the Constitution, draws to a close on June 30, 2022. Last month, the central government paid all past compensation dues to states amounting to Rs 86,912 crore. Of this, Rs 25,000 crore was provided from the GST compensation fund and the rest from the central consolidated fund.

The end of compensation will prove to be a significant revenue loss for many states, leaving some more vulnerable than others. While the government has noted that the compensation support will end with its final payout in June, many states such as Delhi, Chhattisgarh, West Bengal, Rajasthan and Tamil Nadu have urged it to extend the compensation period.

The levy of the GST compensation cess, however, is extended till 2026. That is to pay the loans the union government had taken from the Reserve Bank of India to give compensation to states during the pandemic years of 2019-2021.

States are likely to continue to push for an extension in the upcoming meeting, as the GST compensation contributes more than 20% of the tax revenue for a few of them, according to a report by SBI Chief Economist Soumya Kanti Ghosh.

The council is likely to vote on a report submitted by a group of ministers for a uniform rate hike for casinos, racecourses and online gaming.

According to a Finance Ministry official aware of the matter and who spoke on the condition of anonymity, the eight-member group led by Meghalaya Chief Minister Conrad Sangma has reached an agreement to institute a uniform GST at the highest slab of 28%.

Currently, online gaming platforms pay 18% on the commission they collect. Whereas games involving betting or gambling, including bets on horseracing, attract 28% GST.

A group of ministers, chaired by Karnataka Chief Minister Basavaraj Bommai, has submitted its interim report on rate rationalisation, and might be due for discussion by the GST Council, according to top officials who spoke to BQ Prime on the condition of anonymity.

The GoM was tasked to:

• Review goods and services that enjoy exemption; the objective is to increase the tax base.

• Correct items with inverted duty structure--when the rate of tax on inputs is more than the rate of tax on finished goods.

• Review if existing tax slabs need changes to raise resources.

• Recommend rate rationalisation and merger of tax slabs.

The fitment committee, which assists this GoM, also submitted a list of recommendations that will be taken up in the upcoming meeting, officials in the Finance Ministry told BQ Prime on the condition of anonymity as details are not public yet. These include recommendations to prune the list of GST-exempt items and expand the tax base.

Food and edible staples including curd, lassi, buttermilk, puffed rice, flattened rice, parched rice, pappad, paneer, honey, foodgrain, cereals and jaggery falling in the exempt category. A GST rate on such items will have an impact on the household grocery bills.

Currently, 282 goods and seven services are taxed at 5% and 462 goods and services are taxed at 18%.

The rate recommendations and timing for their implementation, however, are likely to be met with careful consideration, owing to inflationary pressures and the war in Ukraine.

A six-member group of ministers headed by KN Balagopal, the finance minister of Kerala, has submitted its report on e-way bills for gold. It will be taken up at the council meeting, the officials cited earlier said.

The GoM deliberated if it would be feasible to mandate an e-way bill requirement for transporting gold. The move, which triggered safety concerns for transporters, was proposed to curb tax evasion.

The Law Committee, comprising tax officials from the central and state governments and the GST Council Secretariat, have put forth multiple other recommendations that will be reviewed by the GST Council, the official quoted earlier said.

Some of these are regarding:

• The threshold limit for offering GST exemption to online sellers operating on e-commerce platform. If approved, it would help increase participation and ease of doing business for small business owners.

• Decision on date of effect for interest on net cash liability. The recommendation for an interest to be charged retrospectively on the net cash tax liability was agreed upon in previous council meetings and amended into the Finance Bill. However, the proposed date of July 1, 2017 is yet to be finalised.

• The constitution of a GST Tax Tribunal for faster redressal of legal disputes

• Tweaking formula for input tax refunds related to inverted duty.

• Clarification on how much penalty to levy for transactions involving fake invoices.

The Tamil Nadu government official, BQ Prime spoke with over the phone expect that the working of a group of ministers on GST system reforms will be raised in the upcoming meeting.

The GoM on system reforms was constituted by subsuming two GoMs on IT challenges and revenue mobilisation. The task was to review the level and use of information technology to plug leaks and introduce a system of checks and balances in the GST IT system, according to a GST memo dated September 2021.

So far, the GoM has convened twice, albeit virtually, and is said to have arrived at preliminary recommendations, the officials quoted above said.

Currently, cryptocurrencies attract an income tax of 30% for income arising from the transfer of virtual assets and a tax deducted at source of 1%.

According to a Bloomberg report, an inter-ministerial panel will finalise a GST rate for cryptocurrencies next week. In a move to broaden the tax coverage and track dealings in virtual assets, the highest rate of 28% is likely to be levied on cryptocurrencies, the report said.

The matter, however, remains unlikely to be addressed in the upcoming GST council, according the official cited earlier. Cryptocurrencies would have to be officially categorised as either goods or services before a decision on the rate of GST for them is taken.