From Our Special Correspondent
Daijiworld Media Network
Bengaluru, May 28: Cut in GST rates on essential Covid supplies and tax-free status for Covid relief, an extension of GST compensation beyond 2022, bringing petroleum products under GST regime are among the key issues dominating the discussion at the 43rd GST Council meeting being chaired by union finance minister Nirmala Sitharaman in Delhi through video conferencing with representatives of the state governments and union territories on Friday.
The meeting being held after a gap of seven months following persistent demands from the states and union governments is also discussing the inverted structure of GST, which is also the first meeting during this fiscal. Union minister of state for finance Anurag Thakur, finance ministers and senior officers from states and union territories are taking part in the meeting from their respective states through video conferencing.
Home and law minister, Basavaraj Bommai represented the Karnataka delegation from Bengaluru along with the state’s additional chief secretary of finance department IS N Prasad and commercial taxes commissioner, M S Shrikar.
The GST Council meeting comes at a time when many states are forcefully demanding that taxes should be removed or reduced for oxygen cylinders, ventilators, concentrators and life-saving drugs like Remdesivir, due to which many Covid-19 patients need.
Sitharaman, in her response to a letter from West Bengal chief minister, Mamata Banerjee, said exempting domestically produced and commercially imported items from GST would make manufacturers unable to avail input tax credit, which in turn could lead to higher prices for customers.
The centre has already exempted integrated GST on a number of imported items such as concentrators, medical-grade oxygen, ventilators, and life-saving drugs which come in through the donation route.
Meanwhile, the shortfall in GST compensation payable to states in the current fiscal is estimated at Rs 2.69 lac crore, of which Rs 1.58 lac crore would have to be borrowed this year. The centre expects to collect over Rs 1.11 lac crore through cess on luxury, demerit and sin goods which will be given to the states to compensate them for the shortfall in revenue arising out of GST implementation. The remaining Rs 1.58 lac crore would have to be borrowed to meet the promised compensation to states under the Goods and Services Tax (GST) regime.
Under GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017.
“The focus of discussion in upcoming GST Council meeting is likely to be GST compensation dues to the states and tax waivers on varied medicines or medical equipment,” said Prateek Bansal, associate partner, White & Brief Advocates and Solicitors.
GST Council may also take a look at extending the deadlines of various GST compliance as states have already announced lockdowns till the month-end. The correction of the inverted duty structure and bringing petroleum goods under the GST ambit are also on the cards.
The GST Council is likely to discuss the Sikkim government's proposal to levy a Covid-19 cess in the state. Sikkim had proposed a nominal Covid cess for two years on the pharmaceutical and power sectors in the state. Other states such as Arunachal Pradesh, Meghalaya and Goa may also propose levying state Covid cess.
Under value-added tax like GST, the exemption may have a negative impact as typical credit on inputs would not be available thus becoming a cost for the business. Further, it may result in disputes on which ones to be exempted and which ones should not be. Exempting the supply chain could be counter-productive.
However, the following measures can be undertaken by the government to reduce the costs: Customs duty exemptions - Basic Customs Duty (BCD) and health cess can be exempted on import of raw material etc., as provided to Covid-19 vaccines, medical-grade oxygen, oxygen related equipment etc.
The GST supply chain can remain under tax at 5%. However, this can be separately refunded back to the manufacturers or the suppliers selling to unregistered customers, similar to the one allowed in the case of exports but the current GST legislation may not allow such refund. Hence, it can be separately provided by the government outside of GST legislation if we have to reduce the impact, like a special incentive package/scheme. This is subject to the non-collection of said GST from such unregistered customers.
The shortfall in GST revenues might rise to Rs 3 lac crore and the compensation gap to Rs 2 lac crore in the current fiscal. The compensation gap refers to the difference between the compensation required to be paid to states to make good any shortfall in GST revenue collections and the cess money collected and transferred to them.
Traders' body CAIT has sought an extension of the deadline for filing various GST returns till August. In a letter to finance minister Nirmala Sitharaman, it has urged the centre to extend the date of filing of various GSTR returns till August under the GST Act and Rules, without late fee and interest. It said that GST officers should not resort to the cancellation of registrations at this time unless there are pressing reasons for doing so. Also, for all traders having turnover of below Rs 20 crore in a year, no survey or audits or special assessments should be ordered for the years 2017-18 and 2018-19.
Punjab finance minister Manpreet Singh Badal said regardless of which party one belongs to, all states have a stake in and are equity holders in the GST Council. "Whatever we speak is not just purely political but also what can move India forward and which can hopefully propel India into a different league of nations. It is not a question of whether the states are in opposition or BJP-ruled, the revenues of all states have been impacted. Most states are at the receiving end because of the faulty design of the GST," Badal said.
The interests of states need to be taken care of as they carry out all welfare activities like taking care of health, education, social security. The onus of responsibility of the state government is far larger than the Government of India's. All we are looking for is a fair system and a net when the poorest of the poor don't suffer because of the wrong decisions of the Government of India or due to the pandemic," he said.
In the wake of the Covid-19 outbreak in the country, the finance ministry has earlier extended several due dates of GST filing for March and April. With several states announcing local lockdowns till the month-end, it has become difficult for the common man to file the GST returns for May as well. So experts believe that GST Council may also discuss the possibilities of extending various timelines of filing GST Returns.
Under GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16. With states still continuing to face a shortfall in revenue, as GST collections declined on account of slowing economic activity mainly due to Covid-19, the GST compensation cess would continue beyond the first five years of GST implementation.
The centre has estimated the GST shortfall to states at Rs 2.69 lac crore. Finance Ministry expects to collect over Rs 1.11 lakh crore through cess on luxury, demerit and sin goods. The remaining Rs 1.58 lac crore would have to be borrowed to meet the promised compensation. Based on this assumption, it has been estimated that for the period February 2021 to January 2022, the gap between projected revenue and the actual revenue after the release of the compensation would be around Rs 1.6 lac crore.
The second wave of the Covid-19 pandemic has severely hit the country. Amid this, several states have asked for the reduction of GST rates on essential Covid-19 supplies. Rajasthan, Punjab, Chhattisgarh, Tamil Nadu, Maharashtra, Jharkhand, Kerala and West Bengal devised a joint strategy to press for a zero tax rate on Covid essentials.
Finance minister Nirmala Sitharaman is expected to announce the centre’s stand and decisions later in the night.