GST Council is expected to prioritize rate rationalization

The GST Council is expected to focus on rate rationalisation and revenue augmentation at its December meeting. Though no date has been set, the meeting could take place soon following the Winter Session of Parliament.

The session is set to conclude on December 23. The ‘Rules of Procedure and Conduct of Business in the GST Council’ state that the meeting must be held at least once every quarter of the fiscal year. The Council’s most recent meeting was held on September 17.

As of now, there are four primary rates – 5, 12, 18, and 28% – as well as several unique rates such as 0%, 0.25, 1 and 3%. For a long time, there has been discussion about reducing the number of rates, and one proposal was to combine 12% and 18% and prescribe a consolidated rate of 15%. Several other combinations are also being considered.

A Ministerial Group is examining the present rate slab system, including special rates. The group, convened by Karnataka Chief Minister Basavraj S Bommai, has been tasked with recommending the rationalisation steps, such as the unification of tax rate slabs, that are essential for a simple rate structure. This panel was formed on September 24 and was given two months to present its findings.

“The GoM’s report is expected to be available before the next meeting, so that the Council can evaluate and select the next course of action,” a senior Finance Ministry official told BusinessLine. The GoM is expected to propose modifications that can be adopted immediately, as well as a roadmap for changes that should be executed in the near and medium term.

Other expressions

Other terms of reference for the GoM on rate rationalisation include a review of the supply of products and services exempt from GST with the goal of expanding the tax base and eliminating breaks in the ITC (Input Tax Credit) chain, as well as a review of cases of inverted tariff structure.

You May Also Refer: GST Refund | Inverted Duty Structure | Supreme Court Judgement

Higher duty on inputs and lower duty on outputs are referred to as an inverted duty structure. As a result, the industry receives a larger refund, affecting cash flows for businesses and revenue collections for the government. Furthermore, consumers gain nothing. The council corrected IDS on mobile handsets last year, and in September, it resolved to fix this problem on textile and footwear beginning January 1, 2022.

According to the official, some things, such as fertilisers, are still available. “The IDS isn’t just a problem for the government.” “Industry, too, is having difficulty since their working capital is blocked because GST paid at higher rates on inputs is blocked till the grant of refund,” he explained. At the same time, businesses complain that the refund process is time-consuming and inefficient.

Earlier this year, during the budget presentation, Finance Minister Nirmala Sitharaman stated that the GST Council had meticulously sorted out knotty issues. “As Chairperson of the Council, I want to tell the House that we would take every conceivable action to smoothen the GST even further and eradicate anomalies such as the inverted duty structure,” she had stated.