What to expect from the 55th GST Council Meeting and Why is it so important?

The upcoming 55th GST Council meeting, scheduled for December 21, 2024, is intended to address a number of long-standing issues. The GST Council is likely to address many key reforms aimed at the inverted duty structure, rationalising GST rates that will have an impact on the economy, and achieving the goal of reducing the cascading effect of GST.

GST rate rationalization reforms aim to lessen the cascading effect of taxes by unifying tax slabs, resolving litigation over the problem, and addressing other input tax credit (ITC) issues, resulting in the creation of a fluid and efficient tax environment. The fundamental concern is a blockade of working capital due to accumulated ITC, which causes liquidity issues.

This entails rationalising tax rates, assuring lower tax rates for raw materials than for finished items, automating the refund process to improve cash flow, and reducing compliance procedures.

The 45th GST Council established the Group of Ministers (GoM) Committee to examine the issue of inverted duty structures in major sectors and rationalise GST rates.

Correcting the inverted duty structure will simplify the rate structure, decrease issues related to classification and increase GST revenues. The GoM on Rate Rationalization was also tasked with assessing cases of the inverted duty structure that had not already been addressed by the Council and suggesting appropriate rates to reduce refunds caused by the inverted duty structure.

Premiums paid for health and life insurance policies are currently subject to an 18% GST rate. The GoM, which was formed at the 54th Council meeting to review tax rates on insurance premiums and it is expected that they will submit its report to the 55th Council meeting for discussion on removing the 18% rate on term insurance plans and health insurance policies, especially for senior citizens and coverage plans up to Rs.5 lakh.

It is believed that the GoM will strike a balance between exemption, rate decrease, and projected income loss. A reduction in the GST rate on health and life insurance will make insurance more inexpensive and accessible to the general public, especially given India’s low insurance penetration of 1% compared to the global average of 4%.

Furthermore, there has been a lot of speculation about a new 35% GST rate for specific goods such as aerated drinks, tobacco, cigarettes, and associated products. The suggested approach keeps necessary commodities inexpensive while taxing luxury and depreciating goods like nicotine and alcohol more heavily. This method aligns taxation with social policy objectives.

However, on December 3, 2024, the CBIC denied the rumours and issued a clarification that stated, “The GoM formed to rationalise GST rates had not yet submitted its proposals to the GST Council.”

As a result, speculation about the change in GST rates and the new slab rate of 35% is completely erroneous and premature. Thus, it remains to be seen whether the GST Council will provide a definitive timeline for correcting inverted duty rate structures and providing much-needed relief to the masses as a result of high GST rates on mass-consumption goods, which have a direct impact on the affordability of such goods among the general public.

In the past, the Directorate General of GST Intelligence (DGGI) has issued notices to big food delivery companies, citing massive GST liability on delivery charges collected from customers. Following that, the fitment committee was tasked with establishing the taxability of food delivery charges for orders sent online via food delivery applications such as Zomato and Swiggy.

It is anticipated that the recommendations would be discussed at the upcoming GST Council meeting. This is significant because it will provide needed clarity on the stance of the Council on the taxability of food delivery charges and the GST registration threshold for delivery partners, which will undoubtedly aid in the resolution of the revenue-sector conflict.

Despite repeated representations from the sector, items (petroleum crude, high-speed diesel, motor spirit, aviation turbine fuel, natural gas and alcoholic liquor for human consumption) are now exempt from GST. Extra Neutral Alcohol has lately been removed from the GST’s scope.

It is believed that the discussion will bring at least ATF and natural gas within the scope of GST. This has been a focus point at every GST Council meeting since petroleum and oil companies advocated for the inclusion of ATF and natural gas under GST.

By bringing ATF under GST, airline companies will be able to claim ITC on their ATF purchases, while gas companies, city gas distribution networks, and industrial users will be able to claim ITC on the GST applicable to natural gas procurement, potentially lowering their operational costs and increasing pricing efficiency.

The Central Government is optimistic about its discussions with state governments for incorporating natural gas and ATF into the GST regime. Meeting this target would bring the idea of ‘one nation, one tax’ closer to reality.

The 55th GST Council meeting’s decisions and recommendations will be closely monitored because to their possible impact on taxation, trade, and India’s broader financial landscape.

Reforms to insurance premiums and GST rates may give much-needed clarity and relief to both businesses and consumers.