THE CONTEXT: The Goods and Services Tax (GST) Council convened last week for the first time in nearly nine months, marking a significant session with 11 new State Ministers and a recalibrated NDA government at the Centre. The Council tackled a packed agenda, addressing industry feedback and procedural changes, and resolved to reconvene in August to continue deliberations. Despite the extensive agenda, the Council achieved consensus on several key issues, including tax relief measures and procedural simplifications to ease taxpayer burdens and reduce litigation.
OUTCOME OF THE MEETING:
- Tax Relief and Exemptions: The Council approved several tax relief measures, including the Exemption of GST on hostel accommodation costing up to ₹20,000 per month. Exemption of GST on railway services availed by passengers. A uniform 12% GST rate for packing cartons, milk cans, and solar cookers, eliminating classification differences based on material or technology.
- Waiver of Interest and Penalties: The Council waived interest and penalties on tax dues for the first three years of GST, provided the dues are paid by March 2025. This move aims to reduce the litigation burden and relieve taxpayers with pending dues from the initial years of GST implementation.
- Procedural Simplifications: Several procedural changes were approved to simplify compliance, such as the introduction of a new form for taxpayers to correct errors or oversights in previous returns and the reduction of the stipulated pre-deposits for filing appeals, including those to be filed with the upcoming GST Appellate Tribunals. Implement biometric-based Aadhaar authentication for all GST registrations in a phased manner to curb fraud and ease the registration process.
- Anti-Profiteering Clause: The Council ended the clause, which required firms to pass on any tax cut gains to customers. Due to its complex implementation, this clause has been a significant irritant for the industry. The Council also set a sunset date of April 1, 2025, for the receipt of new applications regarding anti-profiteering.
- Future Agenda and Rate Rationalization: The Council plans to revisit the 2021 plan to rationalize the multiple-rate GST structure, which has been in cold storage. This includes potentially merging some of the existing tax slabs and including items like petroleum and electricity into the GST net. The Council aims to simplify the tax structure and reduce business compliance-related issues.
THE WAY FORWARD:
- Rationalizing GST Rates: The GST Council should rationalize the multiple-rate GST structure to simplify the tax regime. This could involve merging the current slabs into fewer categories, such as 5%, 12%, and 18%, while eliminating the 28% slab for most goods and services, except luxury items and sin goods. A rationalized rate structure could boost compliance and increase revenue collections by reducing tax evasion incentives.
- Inclusion of Petroleum and Electricity under GST: Including petroleum and electricity under GST will create a uniform tax structure across the country, reduce the cascading of taxes, and benefit industries that rely heavily on these inputs. Bringing these items under GST could lead to more transparent pricing and reduce consumer tax burden, fostering economic growth.
- Waiver of Interest and Penalties: The Council’s decision to waive interest and penalties for tax dues from the first three years of GST implementation, provided they are paid by March 2025, should be extended to cover more recent periods and include more categories of taxpayers. This waiver offers much-needed relief to taxpayers and helps clear the backlog of disputes, allowing businesses to focus on growth.
- Biometric-Based Aadhaar Authentication: The phased implementation of biometric-based Aadhaar authentication for all GST registrations will curb fraud and streamline the registration process. Biometric authentication will also enhance the integrity of the GST system by preventing the creation of fake entities and fraudulent claims. This measure will strengthen the overall tax administration and reduce instances of tax evasion, thereby increasing the credibility of the GST regime.
- Extension of Input Tax Credit (ITC) Timeline: The timeline for availing Input Tax Credit (ITC) for past periods should be extended beyond the proposed November 30, 2021, to allow businesses more time to reconcile their accounts and claim due credits. Extending the ITC timeline will enable enterprises to correct past errors and ensure they are not unduly penalized for administrative oversights. This extension will help businesses manage their cash flows better and reduce the financial strain caused by retrospective tax adjustments.
THE CONCLUSION:
The recent GST Council meeting intends to simplify and streamline the seven-year-old indirect tax regime. While the full impact of these measures will depend on subsequent details, the Council’s commitment to reform and rationalization, including plans to revisit the multiple-rate GST structure and potentially bring excluded items like petroleum and electricity into the GST net, signals a proactive approach to enhancing the tax system.
UPSC PAST YEAR QUESTIONS:
Q.1 Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism? 2023
Q.2 Explain the salient features of the Constitution (One Hundred and First Amendment) Act, 2016. Do you think it is productive enough to remove the cascading effect of taxes and provide a common national market for goods and services? 2017
Q.3 Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions? 2020
Q.4 Enumerate the indirect taxes subsumed in India’s Goods and Services Tax (GST). Also, comment on the revenue implications of the GST introduced in India in July 2017. 2019
MAINS PRACTICE QUESTION:
Q.1 The GST Council has recently indicated plans to revive the 2021 proposal to rationalize the multiple-rate GST structure and incorporate excluded items like petroleum and electricity. Discuss the potential benefits and challenges of such reforms for India’s indirect tax system and overall economy.
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