TAG: GS 2: POLITY
THE CONTEXT: The GST Council, which typically convenes quarterly, has announced its first meeting of 2024 on June 22.
EXPLANATION:
- This meeting comes after an eight-and-a-half-month hiatus, with the previous meeting held on October 7, 2023.
- The council has met only six times since 2022, reflecting a deviation from its expected quarterly schedule.
- While the agenda for the upcoming meeting has not been disclosed, it is anticipated that State Finance Ministers will propose suggestions for the indirect tax regime that could be incorporated into the Union Budget, expected next month.
- The industry is also keenly awaiting updates on several critical issues, including the restructuring of the GST rate structure, the review of the 28% levy on bets made in online gaming, casinos, and horse racing, and the future of the GST Compensation Cess.
Key Issues and Expectations
- Restructuring the GST Rate Structure
- Given the significant rise in GST revenues, the industry expects the Council to signal the revival of plans to simplify and restructure the complex multiple-rate tax structure.
- This restructuring aims to streamline the tax system, making it more efficient and less burdensome for businesses and consumers alike.
- GST Compensation Cess
- A crucial topic of discussion will be the future of the GST Compensation Cess.
- Initially intended to be levied for the first five years of the GST regime (beginning in July 2017), the Cess was extended post-pandemic to recompense States.
- The Council’s last meeting in October 2023 discussed imposing a cess or surcharge on top of GST levies after March 2026, when the Compensation Cess is set to expire.
- Further discussions on a replacement levy for the Cess and the utilization of these funds are expected in the upcoming meeting.
- Implementation of the Bommai Report
- The Council will likely revisit the recommendations of the Group of Ministers (GoM) led by former Karnataka Chief Minister Basavaraj Bommai.
- Established in late 2021, the GoM was tasked with rationalizing and simplifying the GST rate structure.
- Although some initial recommendations were adopted in June 2022, broader rate rationalization efforts stalled due to high inflation and revenue concerns.
- Following the Karnataka assembly polls in May 2023, the GoM was reconstituted with Uttar Pradesh Finance Minister as its convenor.
- The Council may now push forward with these broader reforms.
Resolution of Operational Issues
- Tax experts anticipate that the meeting will address several long-pending operational issues.
- These include:
- Taxability of the Online Gaming Sector: Clarifications on the tax implications for the online gaming industry are expected before October.
- Taxability of ESOPs: There is a need for clear guidelines on how Employee Stock Ownership Plans (ESOPs) are taxed.
- Corporate Guarantee Taxability: Clarifications on the tax treatment of corporate guarantees are also awaited.
- Rate-Related Clarifications: Due to recent litigations, various rate-related clarifications are anticipated, which could provide much-needed clarity for businesses.
GST Council
- Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
- Article 279A says that President shall by order constitute a Council to be called the Goods and Services Tax Council.
- Composition of GST Council:
- GST Council which will be a joint forum of the Centre and the States, shall consist of the following members: –
- The Union Finance Minister – Chairperson;
- The Union Minister of State in charge of Revenue or Finance – Member;
- The minister in charge of finance or taxation or any other minister nominated by each state government – members.
- One-half of the total number of members of GSTC form quorum in meetings of GSTC.
- Decision in GSTC are taken by a majority of not less than three-fourth of weighted votes cast.
- The council is devised in such a way that the centre will have 1/3rd voting power and the states have 2/3rd.
- GST Council which will be a joint forum of the Centre and the States, shall consist of the following members: –
Mandate of GST Council:
- The Goods and Services Tax Council shall make recommendations to the Union and the States on.
- The taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax.
- The goods and services that may be subjected to, or exempted from the goods and services tax.
- Model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply.
- The threshold limit of turnover below which goods and services may be exempted from goods and services tax.
- The rates including floor rates with bands of goods and services tax.
- Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster.
- Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and any other matter relating to the goods and services tax, as the Council may decide.
- The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
Compensation Cess fund
- A compensation cess fund was created from which States would be paid for any shortfall.
- An additional cess would be imposed on certain items and this cess would be used to pay compensation.
- The Act states that the cess collected and “such other amounts as may be recommended by the [GST] Council” would be credited to the fund.
- In the first two years of this scheme, the cess collected exceeded the shortfall of States.
- In the third year, 2019-20, the fund fell significantly short of the requirement.