49th GST Council Meeting
22, Feb 2023
Prelims level : Taxes and Taxation Mains level : GS-II Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.
Why in News?
- Recently, the Goods and Services Tax (GST) Council in its 49th Meeting has reached consensus on the constitution of the GST Appellate Tribunal to resolve the rising number of disputes under the old indirect tax regime.
What are the Key Highlights of the GST Meeting?
- GST Appellate Tribunal:
- The council has approved the creation of a national tribunal mechanism with state benches for the redressal of disputes.
- The Tribunal will resolve the rising number of disputes under the GST regime that are now clogging High Courts and other judicial fora.
- This year’s Finance Bill can incorporate the enabling legislative provisions for the Tribunal.
- The GST Tribunal will have one principal bench in New Delhi and many benches or boards in states. The principal bench and state boards would have two technical and two judicial members each, with equal representation.
- But all four members would not sit to hear each case, which is likely to be decided based on the threshold or value of dues involved.
- Cleared Pending Compensation Dues:
- It has cleared the balance of Rs 16,982 crore (for June 2022).
- It has finalized GST compensation of Rs 16,524 crore to six states/UTs including, Delhi, Karnataka, Odisha, Puducherry, Tamil Nadu, and Telangana
- Lower Penal Charges:
- It approved lower penal charges for delayed filing of annual returns by businesses with a turnover of up to Rs 20 crore a year.
- The council has approved an Amnesty Scheme for taxpayers unable to file three statutory returns, that entail conditional waivers or reductions in late fees for such filings.
- The GST Amnesty Scheme was introduced to encourage non-filers to voluntarily come forward and file their GST returns by providing a one-time relief from late fees.
- Rate Changes:
- The GST rate on several items has been changed, such as pencil sharpeners, rab (liquid jaggery).
- The Council also decided to extend the GST exemption to educational institutions and central and state educational boards from conducting entrance examinations through any authority, including the National Testing Agency.
- Plugging Tax Evasion:
- The Council has decided to switch the compensation cess levied on pan masala and gutkha commodities from an ad valorem basis to a specific tax-based levy.
- The ad valorem tax is levied according to value.
- This will boost the first stage collection of the revenue.
- The Council also mandated that exports only be allowed against letters of undertaking assuring of GST compliance.
What is the GST Council?
- It is a joint forum of the Centre and the states.
- It was set up by the President as per Article 279A (1) of the amended Constitution.
- The members of the Council include the Union Finance Minister (chairperson), the Union Minister of State (Finance) from the Centre.
- Each state can nominate a minister in-charge of finance or taxation or any other minister as a member.
- According to Article 279 of the Constitution, the council can make recommendations to the Union and the states on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws”.
- Article 279 as well as Article 279A of the Indian Constitution deal with the financial provisions of the country.
- They are specifically related to the calculation of “net proceeds” from Union duties and taxes on goods and the formation of the Goods and Services Tax Council, respectively.
- It also decides on various rate slabs of GST.
- For instance, an interim report by a panel of ministers has suggested imposing 28 % GST on casinos, online gaming and horse racing.
What is Goods and Services Tax?
- GST was introduced through the 101st Constitution Amendment Act, 2016.
- It is one of the biggest indirect tax reforms in the country.
- It was introduced with the slogan of ‘One Nation One Tax’.
- The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
- It is essentially a consumption tax and is levied at the final consumption point.
- This has helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc., and has led to a common national market.
- The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services.
- The set off tax is called input tax credit.
- The GST avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.
Tax Structure under GST:
- Central GST to cover Excise duty, Service tax etc,
- State GST to cover VAT, luxury tax etc.
- Integrated GST (IGST) to cover inter-state trade.
- IGST per se is not a tax but a system to coordinate state and union taxes.
- It has a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%.
What are the Issues Related to GST?
- The GST system in India is quite complex, with multiple tax rates, exemptions, and compliance requirements.
- It hampers the progress of a single indirect tax rate for all the goods and services in the country.
High Tax Rates:
- Some industries and goods are subject to high GST rates, which can make them unaffordable for many consumers.
- For example, the tax rate on luxury goods and services is 28%, which is quite high.
- Though rates are rationalized, 50% of items are under the 18% bracket.
- The GST regime has a lot of compliance requirements, including filing of returns, maintaining records, and regular audits. This can be a burden for businesses, especially small and medium enterprises.
- There have been reports of technical glitches in the GST network, leading to delays in filing returns and claiming input tax credits.
Impact on the Unorganized Sector:
- The unorganized sector, which forms a significant part of the Indian economy, has been adversely affected by the GST.
- Many small businesses and traders have found it challenging to comply with the new tax regime.
Lack of Clarity:
- There is still a lack of clarity on some aspects of the GST regime, such as the classification of goods and services and the applicability of tax rates. This lack of clarity can create confusion and disputes.
- Simplifying the compliance process, providing easier access to information, and increasing support for taxpayers can help address this issue.
- Technical issues such as system downtimes, portal errors, and other glitches can cause significant disruptions for businesses. Addressing these technical issues can help businesses comply with GST requirements more effectively.
- Many small businesses and traders are not fully aware of the GST system and its implications. Increasing awareness and education about the GST system can help improve compliance and reduce errors.
- GST is a collaborative effort between the central and state governments, and coordination between them is crucial to its success. Improving communication and coordination can help ensure a smooth implementation of the GST system.