43rd GST Council Meeting: Need to focus beyond COVID-19 pandemic

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It is important to ensure that long-term changes to the structure of GST and ensuing planned benefits of GST are not diluted to address short-term revenue pressures.

43rd GST Council Meeting: Need to focus beyond COVID-19 pandemic
GST Council held its 43rd Meeting on May 28, 2021, after a long gap—the last Council meeting was in October. The agenda for the meeting was primarily dictated by the prevalent second wave and the expected third wave of the pandemic and covered –
  • Customs duty exemptions on the import of COVID relief items and GST implications on local supplies of similar items
  • Compliance regime rationalisations
  • Compensation cess payout to the states
  • Customs duty and GST exemptions on relief materials
    Indian Customs duties comprise of Basic Customs Duties (BCD) and Customs duties equivalent to Integrated Goods and Services Tax applicable on local supplies of similar products (hereinafter referred to as ‘Import IGST’).  Import of oxygen concentrators, oxygen storage tanks, COVID-19 vaccines, and other relief items made up to specified periods enjoy an unconditional exemption from BCD. However, import IGST has been exempted only where the said goods are imported free of cost by the state or its agency and for free distribution.
    The Council has now extended this exemption to August 31, 2021, and expanded the coverage of the exemption. Import IGST would now be exempted even if imported on a payment basis as long as the imports are for donating to the state government or its canalised agency.
    Further, a Group of Ministers (GoM) will deliberate granting IGST exemption on import of oxygen concentrators and other COVID-19 related individual items for personal use.
    GST exemption on Vaccines and other materials
    GST is levied on vaccines at 5 percent. Exemptions on local procurement of relief items such as Vaccines and Ventilators is being sought by several quarters. However, there is some debate on the effectiveness of these exemptions in reducing costs for the general public. Exemptions result in denial of Input Tax Credits (ITC) increasing costs for the manufacturers. Vaccines and Covid-19 related medications are anyway largely procured by governments and distributed free to the general public—therefore the argument is that GST imposition really shouldn’t matter.
    Further, where procurement is done by private hospitals, it is uncertain whether a tax rate reduction would in fact be passed on to consumers. On a tax revenue front—this is a zero-sum game—since the amounts paid by State and the Central government to suppliers are thereafter collected by the states where the vaccines are consumed. Given the nuances, Council has requested the GoM to recommend the way forward on the matter.
    COVID-19 relief measures around Compliances  
    The government has reduced interest on delayed payment of taxes and rationalised the late fee regime.
    Lower interest rate and late fees:
    Aggregate TurnoverTax PeriodInterest Rate Relaxation from due date
    For 1st 15 daysFor next few days
    More than Rs 5 croreApril and May, 20219%18%
    Upto Rs 5 croreApril, 2021Nil9% for 30 days and 18% thereafter
    May, 20219% for 15 days and 18% thereafter
    Upto Rs 5 crore – Quarterly filersApril, 202129% for 30 days and 18% thereafter
    May, 20219% for 15 days and 18% thereafter
    Taxpayer having turnover up to Rs 1.5 crore or Rs 75 lakh in case of North-Eastern states and Himachal Pradesh (Composition Dealers)Quarter ending March, 20219% for 45 days and 18% thereafter
    Rationalisation of Late Fees
    Earlier, the late fee for non-furnishing of return was Rs 25 per day and Rs 10 in case of nil return, subject to a maximum amount of Rs 10,000 (Rs 5,000 each for CGST and SGST). This has now rationalised, as follows:
    MeasureScenarioRelief – Capping/ Reduction(per return)
    Amnesty Scheme for non-furnishing of consolidated summary return accompanied by payment of tax (GSTR 3B) for tax period July 2017 to April 2021NIL tax liabilityRs 500
    OthersRs 1,000
    Late fee RationalisationNIL tax liability in consolidated summary return containing details of sales invoices (GSTR-1) and Summary Return accompanied by payment of tax (GSTR 3B)Rs 500
    Aggregate turnover in a preceding year up to Rs 1.5 croreRs 2,000
    Aggregate turnover in a preceding year between Rs 1.5 crore to Rs 5 croreRs 5,000
    Aggregate turnover in a preceding year above Rs 5 croreRs 10,000
    Delay in the furnishing of GSTR-4 – Composition DealersNIL liabilityRs 500
    OthersRs 2,000
    Delay in the furnishing of GSTR 7 – Tax Deducted at sourceLate fee reduced to Rs 50 per day and capped at Rs 2,000
    Annual Return (GSTR 9) & GST reconciliation (GSTR 9C) for FY 2020-21
    GST compliance framework required furnishing of a statement reconciling the GST Annual returns with the company Financial statement duly certified by a Chartered or Cost Accountant.  While the Finance Act 2021 proposed to mandate taxpayers to self-certify this reconciliation statement – this change can only be made effective after all States make corresponding amendments in their respective GST legislations. This takes several months. It has now been clarified that the self-certification mandate would apply to FY 2021 compliances.
    Rate change/ clarification – MRO Service
    GST rate on MRO (Maintenance, repair and operation service providers) services in respect of ships/ vessels is being reduced from 18 percent to 5 percent. Further MRO Services relating to ships/vessels provide to foreign customers would be treated as export and therefore zero-rated. This was a long-standing demand and Domestic MROs should now enjoy a level playing field vis a vis foreign competitor.
    Compensation Cess
    State GST revenue growth at an annual compounded rate of 14 percent has been underwritten for the first five years of GST—i.e. up to June 2022.  A compensation cess imposed on items such as automobiles tobacco and others are collected and utilised for compensating the states for any shortfall vis a vis the assured revenue. Given that the overall revenue growth is far lower than the promised 14 percent CAGR—the state compensation amounts have bloated—estimated to be Rs 2.69 lakh crore for FY22—and now far exceed the budgeted compensation cess revenue of Rs 1.1 lakh crore.  The gap of Rs 1.58 lakh crore is to be met through state’s borrowing which would then be repaid from Cess collected in the future.
    The states are now concerned about the revenues beyond five years when the revenue assurance ends. A special session will be scheduled to discuss the Cess conundrum.
    Conclusion
    While the country is going through a devastating pandemic, measures that seek to address critical areas are welcome. However, it is important to ensure that long-term changes to the structure of GST and ensuing planned benefits of GST are not diluted to address short-term revenue pressures.
    It is also important that the GST council now starts looking beyond COVID and deals with the germane issues such as mitigating the cascading impact of taxes, removing ambiguities in the law and rationalising the legislation.
    —The authors, Uday Pimprikar is Partner and National Leader and Divya Bhushan is Director, Indirect Tax, EY India. The views expressed in the article are their own
    Footnotes:
    Depending upon the turnover of a taxpayer, a waiver of late fees ranging from 15 to 60 days has been provided for the tax period March-May 2021
    For March 2021, interest rate relaxation was available for 15 days from the due date. The benefit has now been extended to 45 days
    The late fee amount is total GST which can be equally distributed to CGST and SGST

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