GST Council Meeting LIVE Updates: Finance Minister Nirmala Sitharaman is chairing the 45th meeting of the Goods and Service Tax Council in Lucknow today. The meeting, expected to begin at 11 am, will be the first in-person meeting of the GST Council in nearly two years. Extension of compensation to states beyond 2022 is expected to be on the agenda. The Council will likely discuss rationalizing…
Arvind Subramanian, Josh Felman write: States should give up their demand for an extension of GST compensation mechanism, while the Centre should offer resources during an economic downturn.
Tomorrow, the GST Council is set to meet. Although the agenda focuses on specifics, the time is ripe to take up a broader objective: Leaving the disputes behind and constructing a way forward for GST, one of the major policy achievements of the government.
What has set back the GST for the past year and a half? The contributors are many but the critical one has been simply a lack of revenues. The chart tells the story. In 2016-17 the various taxes that were folded into the GST yielded revenues of Rs 9.7 lakh crore (Economic Survey, 2017-18). Initially, the GST performed well, with collections soaring to Rs 11.8 lakh crore in the first full year of implementation in 2018-19. But in 2019-20, the growth rate decelerated sharply. And in 2020-21, collections actually fell.
As a result, there have not been enough resources to satisfy the needs of the Centre or the states. Moreover, because future collections became uncertain, a gap opened up between the amount that the Centre felt it could afford to promise and the minimum that the states felt they needed and were entitled to. Spanning this chasm has proved difficult.
More recently, however, confidence in GST has improved. Collections have revived, averaging Rs 1.1 lakh crore in the first five months of the current fiscal year, exceeding even pre-pandemic levels. Even more important, the GST’s past performance now seems much better than it once did. We now know the economy turned south after 2018-19, with nominal GDP growth slowing from 10.5 per cent in 2018-19 to 7.8 per cent the next year and -3 per cent in 2020-21. Moreover, as the RBI has pointed out, the effective tax rate has fallen by nearly 3 percentage points because of reckless rate cutting in 2019, in which both the Centre and states were complicit. Thus the weak revenue performance of the GST now seems attributable to wider economic difficulties and policy actions, rather than problems with the tax itself.
Consequently, most of the ingredients for a compromise are now in place: A sense that the country is in this together and confidence that sufficient resources will be available. So, what is to be done?
In our view, three key changes are necessary: Re-casting compensation, simplifying the rate structure, and improving governance. First, the principle of compensation must be re-cast, because the original needs have vanished and new ones have taken their place. The logic of the five-year compensation was simple: The GST was a new tax, so states needed to be guaranteed against the teething troubles that would inevitably arise. Five years on, this logic is less compelling. The GST is no longer an infant; of course, it still needs improvements but as a tax reform it has reached maturity, well understood by producers, consumers, and tax officials.
At the same time, the last few years have exposed the vulnerability of the states to shocks. When Covid arrived, states’ revenues collapsed, eviscerating their ability to spend on health and welfare precisely at the time when such spending was needed most and when states found their fiscal space constricted. To prevent this situation from recurring, the authorities should create a revenue buffer that could be tapped in a time of need. And the most obvious source of funding is the GST, which accounts for over 40 per cent of the states’ own revenues.
In sum, there is a bargain waiting to be struck: The states give up their demand for an extension of the compensation mechanism, while the Centre offers a new counter-cyclical buffer. Put another way, the compensation guarantee should be converted into revenue insurance. As the figure shows, in good economic times, GST revenues will be robust but it is against downturns that states need protection.
The details of this insurance would need to be negotiated, including the threshold for triggering the mechanism, as well as the amount and timing of the compensation. But just to give one example, states could be promised transfers equivalent to 1 percentage point of GSDP for every 3 percentage point shortfall from an agreed trend rate of growth. The transfers would be paid quarterly following any two quarters in which the shortfall exceeded 3 percentage points.
The shift to revenue insurance, in turn, should allow the compensation cess to be abolished. This siloing of what is a common pot of money has led only to accounting shenanigans and bickering. Once it is gone, all payments could again be made from the consolidated fund of India.
Second, the GST structure needs to be simplified and rationalised, as recommended by the Fifteenth Finance Commission and the Revenue Neutral Rate report that one of us authored. To achieve the promised Good and Simple Tax, a new structure should have one low rate (between 8 and 10 per cent), one standard rate (between 16 and 18 per cent) and one rate for all demerit goods. The average incidence of the GST will increase as the rate cuts effected since 2019 are reversed, as they must. The single rate on demerit goods also requires eliminating the cesses with all their complexity. For example, taxes/cesses based on the length of cigarettes are an absurdity deserving immediate abolition.
Finally, the GST Council’s working needs tweaking. Under Arun Jaitley’s stewardship, all GST decisions were taken by consensus. But that can be sustained only if there is a shared sense of participatory and inclusive governance. Nearly two decades ago, when the VAT was being introduced, Yashwant Sinha established a culture of consensual discussions on indirect taxes. He did this by requiring the Empowered Committee of State Finance Ministers to be headed by a finance minister from an Opposition-run state government, such as Asim Dasgupta from West Bengal (during the NDA government’s tenure) and Sushil Modi from Bihar (during the UPA’s tenure).
The spirit of this idea could be translated to the GST Council. For example, discussions in the Council could be steered by the central Finance Minister (Chair), aided by a finance minister (Vice-chair) from an Opposition state, rotating periodically. The agenda-setting and technical work could be done jointly by these two, and they could even take turns chairing council meetings. The council secretariat would report to both officials.
In sum, after one and a half years of dispute, and with the economy showing signs of recovery, a path forward for the GST finally seems visible. This opportunity needs to be seized — and not just because of the inherent importance of the GST. India will fly or falter on the stake of cooperative federalism. And cooperative federalism is not a gesture or one-off outcome. It is, above all, a disposition, resulting from quotidian democratic practice. By rehabilitating cooperative federalism’s finest achievement — the GST — the Centre and states can help restore India’s broader economic prospects.
GST fraud: Three persons including a CA have been arrested on charges of creating and operating multiple fictitious firms on forged documents and passing large amounts of fake input tax credit by way of issuance of invoices without any actual receipt or supply of goods or services, Ministry of Finance said on Wednesday.
The arrest has been made by the Directorate General of GST Intelligence (DGGI) Gurugram Zonal Unit (GZU), Haryana.
The ministry said that one of the arrested persons has created at least 13 firms and has been involved in availing and passing on of a total fraudulent ITC of ₹121 crore.
It has also emerged that the person who had created the fake/dummy firms worked in tandem with a commission agent, who used to sell these goodless invoices to established firms for commission, both directly and through different brokers. The commission agent has also been arrested.
Further, in this chain from the financial movement it has emerged that established firms (end-users) would make transfers to these fake firms, from where the amounts would then be transferred to the account of a private limited company from where the CA in question would withdraw and return the said amount in cash after deducting the commission of his company as well as his own. The amounts of cash transactions ranged around ₹30-40 lakh per day, the statement said.
The probe spanned multiple locations and based on verifications, evidence and statements recorded, it has appeared that the these three persons i.e. the creator of the fake firms, commission agent and the CA were operating in tandem orchestrating this racket of making fake firms on forged documents and having passed on fraudulent ITC amounting to ₹121 crore (so far).Accordingly, they were arrested under the provisions of Section 69 read with Section 132 of the CGST Act, 2017 and produced before CMM, Delhi, who ordered 14 days judicial custody.
Ahead of the GST Council meeting in Lucknow on Friday, a survey has found that 77% citizens want the government to bring petrol and diesel under the Goods and Services Tax (GST) amidst the spiraling prices. According to reports, the GST Council might on Friday may consider taxing petrol, diesel and other petroleum products under the single national GST regime, a move that may require huge compromises by both central and state governments on the revenues they collect from taxing these products.
The Council, which comprises central and state finance ministers, is also likely to consider extending the time for duty relief on COVID-19 essentials, according to sources in the know of the development.
Responding to a question in a survey by LocalCircles, a social media platform, 77% citizens said that they want petrol and diesel be brought under the GST tier structure, 11% said it’s not needed, while 12% responded by saying “can’t say”.
The question received 7,590 responses from citizens located in 379 districts of India. 61% of the participants in the survey were men, while 39% were women. Of these, 44% of respondents were from tier 1 districts, 29% from tier 2 and 27% were from tier 3, 4 and rural districts.
The survey found that majority of the Indian households want petrol and diesel to be moved under GST as it will immediately have a huge positive impact on the cost of living.
In a similar survey in the first half of 2021, at least 51% households had said that they have cut spending to cope with high petrol/diesel prices; 21% had even cut essentials spending and were feeling the pinch strongly while 14% expressed they were even dipping into savings to pay for it.
GST is a “single tax” applied all over India, with a set-off provision for tax paid on inputs. However, the constitutional amendment Act on GST, while providing for inclusion of crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) under its ambit, had kept these products “zero-rated”
Online food-delivery operators such as Swiggy and Zomato may have to pay goods and services tax (GST) on restaurant services supplied through them. The GST Council in a meeting on Friday in Lucknow will take this up.
Estimating GST losses of Rs 2,000 crore in 2019-20 and 2020-21, the fitment panel has recommended food aggregators be classified as e-commerce operators and pay GST on behalf of the restaurants concerned. Many restaurants are not depositing GST, while some are not even registered. The rate fitment panel has suggested the change come into effect on January 1, 2022, to …
For the first time since the one tax for all India, GST, came into play in 2017, the supreme decision-making entity, GST Council, may consider a proposal to bring petrol and diesel under the GST regime.
The agenda for the GST Council scheduled to meet on September 17 in Lucknow includes considering taxing petrol, diesel and other petroleum products under the single national GST regime.
This comes when fuel prices are at the highest levels and consumers are taking a hit. There has been a clamour to include fuels under the GST regime as that is expected to drastically bring down prices.
When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview till the time states acquired a revenue-neutral situation (when GST revenue matches the revenue generated in pre-GST era).
Currently, the five fuels are subjected to central excise, cess and state Value Added Tax which brings in huge revenues for the Centre and the states.Several states have also been opposed to subsuming fuels in GST as it is a consumption-based tax and bringing petro products under the regime would mean states, where these products are sold, get the revenue and not ones that currently derive the most benefit out of them because they are the production centre.
Despite the clamour, states have been staunchly opposing the move, fearing huge revenue losses. That’s why the GST Council has never taken up a proposal to subsume fuels in the GST regime.
This time, the council didn’t take up a proposal for consideration suo motu. Instead, it was forced to do so as in June, the Kerala High Court, based on a writ petition, asked the GST Council to take a decision on bringing petrol and diesel within the goods and services tax (GST) ambit.
However, sources confirmed that the proposal for bringing petrol and diesel within the GST would be placed before the Council for discussion in light of the court asking the Council to do so.
But in the Friday meeting, the move may not find support from states cutting across party lines. Even the Centre may not be too keen to back the proposal as the move may require huge compromises by the central and state governments on the revenues they collect by taxing these products.The Council, which comprises central and state finance ministers, in its meeting scheduled in Lucknow on Friday, is also likely to consider extending the time for duty relief on COVID-19 essentials, according to sources in the know of the development.
GST QRMP Scheme: GST taxpayers who opted for the Quarterly Return Monthly Payment Scheme (QRMP) scheme must note that today, September 13, 2021, is the last date for uploading the B2B invoices for August 2021.The Central Board of Indirect Taxes and Customs (CBIC) has tweeted from its official Twitter handle reminding about the deadline today. The tweet said, “Attention GST Taxpayers who have opted for QRMP Scheme! Enjoy the convenience of IFF to enable the flow of ITC to the recipients by uploading B2B invoices for August, 2021
What is QRMP scheme?
It has to be noted that in the 42nd meeting of the GST Council on October 5, 2020, in order to further ease the process of doing business, it was recommended that the registered person having aggregate turnover up to Rs 5 crore may be allowed to furnish return on quarterly basis along with monthly payment of tax, with effect from January 1, 2021. This scheme is known as the QRMP scheme.
How to use the IFF facility?
The GST taxpayers who have availed the QRMP scheme will be able to enjoy the full convenience of the Invoice Furnishing Facility (IFF).
It must be noted that IFF is a facility provided to quarterly taxpayers who have availed QRMP scheme, to file their details of outward supplies in first two months of the quarter (M1 and M2), to pass on the credit to their recipients. IFF consists of the following Tables of FORM GSTR-1:
a. 4A, 4B, 4C, 6B, 6C – B2B Invoices
b. 9B – Credit/ Debit Notes (Registered)
c. 9A – Amended B2B Invoices
d. 9C – Amended Credit/ Debit Notes (Registered)
IFF is an optional facility provided to quarterly taxpayers only. If IFF is in Submitted status, then filing of IFF is mandatory. In case, submitted IFF is not filed then taxpayer cannot file their Form GSTR-1 for the quarter.
In order to view the IFF form for M1 and M2 of any month, one has to login to GST portal using the valid credentials and navigate to Returns > Services > Returns Dashboard.
The File Returns page will be displayed. Now, one has to select the Financial Year and Return Filing Period (Any of first two months of the quarter) for which one wants to file the return from the drop-down list and click the SEARCH button. The pending IFF forms for M1 and M2 will get displayed.
In case of any query and further details, one has to login to the official GST website at gst.gov.in
While petroleum products are constitutionally included under the ambit of the new indirect tax regime, the GST Council is yet to take a call on the date on which GST shall be levied on them.The Goods and Services Tax (GST) Council that will meet in Lucknow next week may discuss bringing one or more petroleum products—petrol, diesel, natural gas, and aviation turbine fuel—under the ambit of GST, extend tax concessions on Covid-treatment medicines, and consider a roadmap to make Aadhaar authentication mandatory for existing 8 million registered firms gradually, people aware of the details said.
The matter will be brought before the Council for discussion and decision on September 17 as per the direction of the Kerala high court that had in June issued directions to decide on including petrol and diesel under the ambit of GST, two people aware of the development said, requesting anonymity.
While petroleum products are constitutionally included under the ambit of the new indirect tax regime, the GST Council is yet to take a call on the date on which GST shall be levied on them. Many members of the Council, the apex federal body for all GST-related matters, do not want a uniform GST rate on petroleum products due to revenue considerations, one person said.
Central and state taxes on petroleum products contributed over ₹5.55 lakh crore in 2019-20, and diesel and petrol are the two biggest revenue earners in that order. Uniform GST will drastically reduce central and state levies on petrol and diesel and bring down consumer prices of automobile fuels substantially. At present, petrol is sold at ₹101.19 per litre in Delhi and diesel at ₹88.62. In Delhi, central levies account for over 32% of petrol’s price, and state taxes (value-added tax or VAT) 23.07%. On diesel, central excise is over 35% while state taxes are more than 14%.
Through 2020, as global crude prices fell, the central government raised excise duty on fuel to shore up its finances. States too followed suit as revenues were hit on account of the pandemic. According to official data, the petroleum sector contributed ₹3,71,726 crore central excise revenue in 2020-21, and ₹2,02,937 crore state levies or value-added tax (VAT).
“Considering the revenue concerns, it may not be possible for the Council to immediately bring all petroleum products under GST, but it may give a direction and could select one or two items such as natural gas and ATF that may not disrupt governments’ revenue stream,” a second person said. HT had reported on April 10 that the Council may consider bringing at least the two products under GST to promote a gas-based economy and to provide stimulus to the pandemic-hit aviation sector. Many other issues will be deliberated in the 45th meeting of the Council, which will physically meet for the first time since the outbreak of Covid-19 last year, the two people said.
The Council, which is chaired by the Union finance minister, is represented by state finance ministers and its decisions are often unanimous.
It will consider a roadmap to gradually make Aadhaar-based GST authentication mandatory for about 8 million existing firms after the Council already made it compulsory for new registrations last year, they said. As including all of them at one go will be difficult and might add a sudden compliance burden on businesses, it has been proposed that the verification process be gradual, they said.
To filter out fake dealers and check misappropriation of input-tax credit (ITC), the GST Council had, in principle, decided to make Aadhaar mandatory at its March 2020 meeting. Initially, it was decided to implement Aadhaar-based authentication for only new taxpayers from August 21, 2020. “The date to implement Aadhaar-based implementation was still pending for existing taxpayers,” the first person said.
“It is proposed that first Aadhaar-based authentication should be made mandatory for two sets of existing GST-registered entities—those who are seeking refunds, and those who apply for revocation of their cancelled registrations,” the second person said.
Similarly, the requirement of Aadhaar authentication should be gradually increased for other processes, he said. At later stages, more processes could be included where Aadhaar authentication would be a pre-condition. For example, applying to make core amendment of registration, generation of e-way bills, filing an application for advance ruling, request for unblocking of e-way bills, filing appeals and taxpayers paying tax predominantly through ITC.
The Council will also consider a proposal of cash-strapped Sikkim to levy a calamity cess on the power and pharmaceutical industries for two years, the first person said. “This may pave the way for many other states to demand similar dispensation to raise resources after facing a devastating impact of Covid-19 pandemic,” he said. Kerala already does that.
Hyderabad: Telangana will seek early release of pending GST (Goods and Services Tax) compensation to the State at the 45th GST Council meeting scheduled to be held at Lucknow in Uttar Pradesh on September 17.
The State government, which had strongly opposed the Centre’s attempt to impose ‘backdoor GST’ on liquor in the name of ‘extra neutral alcohol’ or ENA during the previous meeting of GST Council, is also likely to oppose the proposed inclusion of petroleum products in the GST regime.
For the first time after Covid-19 pandemic last year, the GST Council will be meeting physically in Lucknow. Finance Minister T Harish Rao has already been communicated in this regard and he will be attending the meeting, official sources said.
One of the major issues on the State’s agenda would be pending GST compensation for the State including Integrated GST (IGST) funds. The Union government owes nearly Rs 4,073 crore of GST compensation to the State which witnessed a steep fall in GST collections as well as the State revenues due to the Covid-19-induced economic slowdown. Telangana was meted out step-motherly treatment even under the Centre’s special borrowing scheme, with the State receiving the lowest GST compensation i.e. Rs 2,197 crore during the financial year of 2020-21. The State government has also been demanding around Rs 218 crore IGST which is pending from the Union government and also ensure disbursement of the compensation due to the State expeditiously.
The State government will also strongly pitch for an extension of the period of compensation cess beyond five years, in the wake of Covid-19 impact on the economy. It may be recalled that the States had agreed to join the new tax regime of GST, with a condition that they would be compensated for any revenue loss in the first five years from July 1, 2017 to June 2022. The Union government, it is learnt, was however, reluctant on this score.
The State government is likely to oppose the Centre’s proposal to bring select petroleum products like natural gas under the ambit of GST. During the last GST Council meeting, Telangana had already raised strong objection over the Centre’s proposal of including extra neutral alcohol or ENA which accounts for nearly 35 per cent of the total liquor production cost. Liquor and petroleum products were kept out of the ambit of GST when it was enforced in the country in June 2017 following severe concern expressed by States over loss of their own tax revenue, if they are brought under GST. But the Centre is now adopting ‘backdoor methods’ to impose GST on both liquor and petroleum products.
Harish Rao is also likely to reiterate the State’s demand to raise FRBM (Fiscal Responsibility and Budget Management) limit to 5 per cent to give a boost to financial activities.
The Goods and Services Tax Council meeting on Friday, the first physical meeting in more than 20 months, will deliberate on levying the Covid cess on pharmaceuticals and the power sector for intra-state supplies in Sikkim besides extending the states compensation period beyond 2022.
The meeting, being held in Lucknow, may take up notifying a common comprehensive e-portal gst.gov.in for registration, paying tax, and filing returns. Chaired by Union Finance Minister Nirmala Sitharaman, the 45th Council meeting will be the first one taking place outside New Delhi in two years.
The Group of Ministers (GoM), led by Karnataka Chief Minister Basavaraj Bommai, has backed Sikkim’s proposal for a 1 per cent cess on intra-state supplies of pharmacueticals for two years. It has endorsed a special aid of Rs 300 crore per annum till 2023 for Sikkim by the Centre to overcome Covid-related losses.
However, with electricity being outside the GST purview, the GoM has recommended the state independently explore the proposal of Rs 0.1 (10 paise) per unit of electricity consumption or sale.It may discuss extending the compensation cess for states beyond 2022. Most states are likely to pitch for an extension by another five years, amid several fiscal constraints. While the Centre may agree to extend the compensation period, it will press for lower assumed revenue growth as against the 14 per cent at the moment, arguing that it may not be sustainable.
States were promised compensation for five years after GST implementation in July 2017 revenue shortfall assuming a 14 per cent annual growth, since states lost autonomy over indirect taxes. Compensation cess is levied on a few items in the 28 per cent GST slab, such as automobiles, cigarettes, and aerated drinks.
Aditi Nayar, chief economist, ICRA Ratings said that there was a clear case for extending compensation for states as Covid-19 has dealt a blow to state finances. “Stopping compensation in three quarters will be a structural shock for state finances. But, at the same time the assumed growth rate for protected revenues should be more realistic for it to be sustainable,” said Nayar.
Devendra Kumar Pant, chief economist, India Ratings said that the 14 per cent growth was fixed at a time when both economic growth and tax collections were more buoyant from what they were currently. “…Personally, a buoyancy of 1.1x along with a minimum threshold of 8 per cent or a different combination where compensation is based on collection rather than a fixed annual growth could be discussed in GST council,” said Pant.
The Council will also provide clarification on the interest levied on wrongful or ineligible input tax credit claims, in accordance with the agenda circulated on Sunday. It may address the steel sector’s problems with manufacturers facing enforcement action including blocking input tax credit and supply-side disruption due to fake invoicing by the scrap dealers. The Council may consider rationalising the GST rate on steel scrap from the current 18 per cent.
The Council may review concessional rates on pandemic-related essentials like medicines, oxygen, and medical kits beyond September 30, 2021, amid fears of the third wave looming large.
It is also likely to discuss the way forward for rate rationalisation and correcting the inverted duty structure on textiles, footwear, etc and bringing petroleum products like aviation turbine fuel and natural gas within GST.
The fitment committee, which recommends rate changes to the Council, has likely proposed increasing the rate on footwear (less than Rs 1,000), readymade garments, and fabrics to 12 per cent from 5 per cent now. For inputs like manmade fibre and yarn, the panel has likely proposed reducing the rate to 12 per cent from 18 per cent to correct the distortion.