INFLATION DELAYS GST RATES RATIONALISATION, CENTRE COUNTERS STATES

Sources feel that the clock is ticking for the GST council and a meeting can't be delayed beyond the start of the monsoon session of Parliament which usually is held in the third week of July.

First the Covid, then the ongoing Russia-Ukraine war. The global dislocations caused by the two are not only causing shortages, driving prices of staples but also delaying an impending rejig of taxes consumers pay for goods and services. With external factors dictating shortages and inflation, the Goods and Service Tax (GST) rate rationalisation aimed at improving tax collections hangs fire as both the centre and states do not want to hike taxes at a time when prices are on the boil.

Sources feel that the clock is ticking for the GST council and a meeting can't be delayed beyond the start of the monsoon session of Parliament which usually is held in the third week of July. "A GST council meeting in the second part of June can't be ruled out," said a source.

But another official added that a meeting may be held prior to the Parliament session but there are slim chances of levy on large number of items being raised before the crucial assembly elections at the end of the year in Gujarat and Himachal Pradesh later this year

In its September, 2021 meeting, the council put in place a Group of State Finance Ministers (GoSFM) to look into the possibility of rationalisation of commodities and services under different tax slabs.

The key task of the group was to examine the wholesale and sharp reduction in GST on most commodities and services in the council meet in November 2017 in Guwahati

The GST council then led by finance minister, late Arun Jaitley had kept just 50 items in the highest tax rate of 28 per cent. The Council decided to reduce the tax rate on 178 of the 228 items from 28 per cent to 18 per cent, with effect from November 15, 2017.

Items with tax rates reduced to nil from 5 per cent included guar meal, sweet potatoes, and dried or frozen fish.

GST for all restaurants was fixed at 5 per cent, except those in hotels with a tariff of Rs 7,500 or more, which will be taxed at 18 per cent with input tax credit (ITC).

Tax experts had then termed the Council's decisions virtually upended the original GST structure — a bold decision which came ahead of the Gujarat elections that year.

GST collections after the lows during the lockdowns to curb the spread of the pandemic have steadily gone up. The gross GST revenue collected in the month of April, 2022 was Rs 1,67,540 crore. Of this, the CGST was Rs 33,159 crore, SGST Rs 41,793 crore, IGST Rs 81,939 crore (including Rs 36,705 crore collected on import of goods) and cess Rs 10,649 crore (including Rs 857 crore collected on import of goods).

The gross GST collection in April 2022 was an all time high, Rs 25,000 crore more than the next highest collection of Rs 1,42,095 crore, in March.

There is a view among the council members that to raise collections a rejig of taxes that includes several items being moved to higher tax slab and a change in tax slab is necessary now as the revenue neutral rate has dropped to 11.5 per cent compared to 15 per cent in 2017 when GST had kicked in.

However, the group of ministers is yet to submit its report to the council to take the issue forward. Senior government officials feel that the delay is also due to the difficulties faced in fixing higher rates or shuffling slabs when external factors are driving economic activity and prices remain high.

Raising tax levels on commodities and their reclassification is a tickling issue which has been around in the council since 2019 but couldn't find takers due to the economic slow down which had already set in.

CENTRE COUNTERS NON SHARING OF CENTRAL CESS

The council is desperate to raise GST collections as the clamour for states are upping the ante on shortage of revenue post gst and attacking the centre claiming that the centre shared only the basic excise on fuels with the states and was picketing the earnings from cess.

The war of words escalated in the last week of April during a meeting with Chief Ministers on covid preparedness Prime Minister Narendra Modi had urged several non-BJP ruled West Bengal, Tamil Nadu, Maharashtra, Kerala, Telangana, Jharkhand and Andhra Pradesh to cut taxes on fuels.

He had flagged that these states hadn't cut Value-added tax (VAT) after the centre announced a Rs 10 and Rs 5 cut in central levy on the fuels in November last year. Most BJP ruled states and others by opposition parties had provided relief to the consumer by reducing their tax.

The latest flash point came when the centre went in for the second cut in cess on the fuels on Saturday last.

West Bengal and Tamil Nadu bluntly rejected the PM's plea while Maharashtra and Kerala which had cited resource constraints went in for state duty cut. The opposition ruled states had complained that the centre was yet to pay their gst dues and was keeping all the cess collections for itself.

West Bengal cm Mamata Banerjee had said slashing State levies on petrol and diesel will be possible only if the Centre clears its outstanding dues of over Rs 97,000 crore, which includes compensation for implementing the GST.

But on Wednesday, sources in the union government challenged several charges levelled by the states against the Centre, including, the centre not sharing cess collection.

Top officials said that when gst was implemented in 2017, around 18 cesses were abolished. The earnings from these accrued to the centre.

But now what was otherwise going only to the Centre, is now also shared with the States as per the devolution formula as, these were subsumed into GST.

In 2016-17, prior to GST, the collection from these cesses was Rs 56,641.26 crore. The only major cesses that remain are the GST Compensation Cess, Health and Education Cess and Cess for Central Road and Infrastructure Fund. A senior official told India Today, "Not only have these cesses funded various important schemes and development activities, the Government has provided more than the actual collection to various Schemes which are funded from Cesses."

The officials explained that even in the recent past the revenue from cess has been below the amount utilised.

The official said, "The Road and infrastructure cess revised estimate (RE) for 2021-22 was Rs 2.03 lakh crore. Against this the RE for amount utilised under 9 categories for 2021-22 was Rs 2.4 lakh crores. These works were carried out in states. The centre didn’t keep it for itself."

Similarly, the budgeted estimate for 2022-23 the road and infrastructure cess is Rs 1.38 lakh crore while utilisation is estimated at Rs 2.95 lakh crore. The RE for GST compensation cess for 2021-22 is Rs 1.05 lakh crore while utilisation stands at Rs 1.10 lakh crore.

At the end of April, the Union Finance Ministry had said that Rs 78,704 crore of compensation was due to the States in lieu of goods and services tax (GST) for financial year 2021-22 (FY22), which is equivalent to the compensation of four months. The government added that no dues for FY21 were pending and till date it has released Rs 7.35 trillion to states, including the assistance released on back-to-back basis.

- India Today