47th meeting of the GST Council

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    • Recently, the Union Finance Minister chaired the 47th meeting of the GST Council in Chandigarh and took the decision to hike tax on over two dozen goods and services from July 18.

    Major decisions and Recommendations at GST council meet

    • Hike: Products ranging from unbranded food items, curd and butter milk to low-cost hotels, cheques and maps.
      • It includes LED lights, solar water heaters and writing inks, where inverted duty structure was seen which means where tax rates on inputs were higher than the final product.
      • The tax rate on Tetra Pak has been raised from 12% to 18%.
      • Cut and polished diamonds will now attract GST at 1.5% instead of the prevailing 0.25%.
      • Increase in tax on petroleum and coal bed methane to 12 per cent from 5 percent earlier.
      • GST on e-waster was revised from 5 per cent to 18 per cent.
    • Lowered tax rates: tax rates will be lowered for goods and services including ropeways and truck rentals where fuel costs are included, and scrapped for products imported by private vendors for use by defence forces.
      • The GST rate on splints for treating fractures, intraocular lens for those with failing eyesight and ostomy appliances will be reduced from 12% to 5%.
    • Exemptions: Assisted Reproductive Technology and In Vitro Fertilisation (IVF) services are covered under the health care services for the purpose of GST exemption but stem cell preservation services will no longer be tax-free.
    • High inflation: GST rate changes have been made considering the high inflation that we are facing right now.
    • Changes in IT systems: Modifications in GST’s IT systems to bolster compliance and crack down on tax evasion has been done.

    Issues that can be faced

    • Additional burden: higher taxes would put an additional burden on households who are already facing a surge in food and energy prices.
    • Agricultural items: The tax on agricultural items like packaged cereals, wheat, maize, rice, which are unbranded but sold in a labelled package, may increase by 5% making it costly.
    • Edible oils as well as milk products are likely to become costlier as a result of the GST rate increases.
    • Opposition by the citizens: Majority of Indians want the government to levy a 28% or higher goods and services tax (GST) on online gaming, casino and horse racing. But they are against a GST hike on household goods.

    Goods and Service Tax (GST)

    • Goods and Services Tax is an indirect tax used in India on the supply of goods and services.
    • It is a value-added tax levied on most goods and services sold for domestic consumption.
    • It was launched in India in 2017 as a comprehensive indirect tax for the entire country.
    • It is a comprehensive, multistage, destination-based tax– comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. 
    • It is paid by the consumers and is remitted to the government by the businesses selling the goods and services.
    • It is of three types i.e. 
      • CGST to be levied by the Centre, 
      • SGST to be levied by the States and 
      • IGST a tax levied on all Inter-State supplies of goods and/or services.  
    • All these taxes are levied at rates mutually agreed upon by the Centre and the States. 
    • The GST Council headed by the Union Finance Minister is the governing and key decision-making body for GST. 

    Significance of Goods and Service Tax (GST)

    • Better Compliance: GST helped in achieving better tax compliance by subsuming multiple taxation and reduction in taxation burden in the last four years.
    • Automated tax ecosystem: It helped the country in transitioning to an automated indirect tax ecosystem. From electronic compliances, generation of e-invoices to tracking movement of goods through e-waybill – everything is now online
    • E-invoice & More Revenue: The E-invoicing system helped reduce fake invoicing. Use of technology with online bill generation has resulted in smoother consignment movement and much fewer disputes with officials. After the introduction of E-invoice, GST collections have risen steadily since November 2020, surpassing the Rs. 1 lakh crore mark on several occasions.
    • Logistical efficiency, production cost cut: Another major achievement of this regime is the fact that over 50% of logistics effort and time is saved since GST has ensured the removal of multiple checkpoints and permits at state border checkpoints. 
    • Lesser transaction costs: After the introduction of GST, there has been a significant reduction in transaction costs. This reduction has been a huge breakthrough in the interstate movement of products, allowing the country to boast of a single national unified market for businesses. 
    • Cooperative Federalism: The customs portals are linked with the GST portal for credit availing on imports constitution of the GST Council and ensuring Centre-State partnership in the decision-making process. It ensured cooperative federalism to be its major part.
    • Ease of doing business: India’s ease of doing business ranking has improved significantly in the last four years. Before GST was implemented, India’s Ease of Doing Business ranking was 130 in 2016. In 2020, India was ranked 63rd on the list.
    • More Freedom: Since the GST rate is the same across the country for a particular supply, traders and manufacturers in the organised sectors have gained more freedom to choose the best vendors, suppliers, and other stakeholders with better pricing, regardless of their location. 
    • Improved Competitiveness: GST has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes. 

    Challenges in Goods and Service Tax (GST)

    • Constant amendments: Over the last few years, the GST law has seen many amendments. During this time, all these revisions often confused the taxpayer and as well the tax administrators which created misunderstandings and misconceptions. To date, more than 1,000 notifications/circulars/instructions/orders have been issued by the government machinery. 
    • Non-implementation of GSTR-2: GSTR which was the only control for systemic reconciliation was never implemented. To prevent any bogus claim of ITC, reconciliations are required to be controlled by the system. However, since it was never implemented now taxpayers asked to provide self-attested offline reconciliations maintained in annual return GSTR 9 or GSTR 9C. 
    • Refund delay issues: While the Government has taken many steps to smoothen the process of export refunds, automatic processing of refunds has always been an area of major concern under GST. Since there are manual approvals involved in the existing process, there are chances of a discrepancy, human error, delay in refund processing which goes against the expectations of the exporters from the system.
    • Adaption & Technical Issues: Small and medium businesses are still grappling to adapt to the tech-enabled regime. The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches, 
    • Complex Penalties: Many businesses are genuinely not able to monitor their vendor behaviour and feel that they should not be penalised for the tax compliance deficiencies of their vendors once they have paid the GST amounts to their vendors.
    • Low Revenue: Widespread non-compliance and non-filing of GST returns was considerable in the first three years of GST which led to low revenue collections.
    • Other Concerns: Further, the 15th Finance Commission, in its report, has also highlighted several areas of concern in the GST regime relating to:
      • multiplicity of tax rates, 
      • shortfall in GST collections vis-à-vis the forecast, 
      • high volatility in GST collections, 
      • inconsistency in filing of returns, 
      • dependence of States on the compensation from Centre

    Way Forward

    • The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the states.
      • They are recommended in nature. The recommendations only have a persuasive value.
    • To regard them as binding would disrupt fiscal federalism when both the Union and the states are conferred equal power to legislate on GST.
    • The federal system is a means to accommodate the needs of a pluralistic society.  

    GST Council

    • It is a constitutional body under Article 279A, introduced by the Constitution (One Hundred and First Amendment) Act, 2016.
    • It is empowered to modify, reconcile or to procure any law or regulation based on the context of GST in India.
    • It is also considered as a federal body where both the centre and the states get due representation.
    • Functions: It makes recommendations to the Union and State Government on issues related to GST.
    • Composition
      • Chairperson: Union Finance Minister.
      • Members: Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
    • Every decision of the GST Council shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:
      • Vote of the Central Government shall have a weightage of one third of the total votes cast.
      • Votes of all the State Governments taken together shall have a Weightage of two-thirds of the total votes cast, in that meeting.

    Source: TH