So, the long-awaited 45th GST Council physical meeting is over. And it has been a bit of a disappointment. Yes, there has been an impressive list of recommendations.
Some of the recommendations being:
• COVID- 19 relief measures have been extended till December 31, 2021. There is a reduction of GST rate to 5 percent on some more Covid-19 treatment drugs till December 31. There have been changes in rates on a range of goods. Retro fitment kits for vehicles used by the disabled have been reduced to 5 percent, ores and concentrates of a range of metals have been increased from 5 percent to 18 percent, cartons, boxes, packings container of papers from 12 percent to 18 percent, all kinds of pens to 18 percent. IGST on import of specified medicines for personal use for muscular atrophy have been reduced to 0 percent.
• Brick kilns have been brought under a special composition scheme with a threshold limit of Rs 20 lakh. Correction of inverted duty structure in footwear and textile discussed and recommended in an earlier GST council meeting, but deferred, will now be implemented from 1.1.22. This will mean a rate of 12 percent on a range of items falling under footwear and textiles.
• Similarly, on services there have been several recommendations. The more significant among them being the move to bring within the ambit of GST, E commerce operators providing restaurant services with effect from 1.1.22. The restaurant industry is very fragmented-from a 5-star hotel, to high end restaurants, to ordinary eateries, all of which use the e-commerce platform for home deliveries. There needs to be clarity as to how E commerce will impact this range of food service providers.
• Clarifications have been issued in relation to the GST rate on goods and on services. This being primarily to address the often-contradictory decisions being taken by the various state advance ruling authorities. Thus, for instance scented sweet supari and flavored and coated ilaichi would attract GST at 18 percent; ice cream parlors selling already manufactured ice cream would attract GST at the rate of 18 percent.
• There have been recommendations on law and procedure too. For instance, Aadhaar authentication has been made mandatory for being eligible for filing refund claim. GoM’s are to be set up to address issues of inverted duty, review exemptions, increase the use of technology and create an institutional mechanism for sharing intelligence.
One wonders if this exhalated constitutional body, one of the most powerful in the country with the mandate of carrying forward the most ambitious tax reform in the country, should even be concerning itself with such an array of mundane matters. Of whether they should trust the fitment committee consisting of officers from the States and the Centre to go into the details like whether tamarind seeds should attract 5 percent or not. And whether this august body of all Finance Minsters should be concerning itself with larger policy issues.
The elephant in the room, bringing in of petroleum products, finds mention in the press release post the council meeting. To the very limited extent of saying that in terms of the directions of the Hon’ble High Court of Kerala, the issue of whether petroleum products should be brought within the ambit of GST was placed for consideration. That ‘after deliberations, the Council was of the view that it is not appropriate to do so at this stage.’ This was expected, but still disappointing. The Council certainly did adhere to the letter of the directions of the Court but most certainly not the spirit.
The bringing in of petroleum products is so very important for the very integrity of GST. Its absence breaks the chain; it adds to costs. The sheer ubiquitousness of the usage of petroleum products means its impact is across the entire range of goods and services. Which is why it generates so much central excise revenue for the Centre and the VAT revenue for the States.
Revenue considerations should and can never be a reason for keeping products out of the GST chain.
Bringing at least one of the petroleum products would have been a powerful signal. Bringing in an item like ATF which would have impacted just a few States where fueling/refueling takes place, would have been ideal. The revenue implications are minimal. This unfortunately was not to be.
And the other 800-pound gorilla in the room, the issue of whether compensation will continue beyond 2022 does not even find mention in the press release. The press note does mention of the Council having been informed that compensation cess will have to be imposed till April 2026 to pay for the back-to-back to borrowings and debt servicing made to meet the compensation gap in 2020-21 and 2021-22.
The Centre’s constitutional commitment to meet shortfall at the absurdly high assumed rate of growth of 14 percent is no doubt only till June 2022. However, given the anxiety levels of the States, and the fact that it would appear that the very future of GST hinges on this issue, it needs to be addressed and resolved urgently.
The GST Council should address large policy issues-of why dispute resolution mechanism is still an issue. Of why the Tribunals have still not started functioning despite the Supreme Court repeatedly expressing concern. Of why there is still no Apex Advance Ruling body leading to the spectacle of State’s dishing out Rulings which contradict each other. Of when the very important issue of convergence of rates will be initiated. Of how to improve compliance. Of the road map for GST going forward. Hopefully, this will start happening soon.
— Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal
Read his other columns here
(Edited by : Anshul)
First Published: IST