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The stage is set for the first phyiscal GST Council meeting since last March. On Friday, in Lucknow, Finance Minister Nirmala Sitharaman and authorised Ministers/officials of 28 States and three Union Territories with legislature will meet ‘in person’ to discuss and decide on an elaborate agenda comprising rate or regulations changes related with over 50 goods and services, correction in inversion of duties on items such as footwear and textiles, considering new mechanism to deal with profiteering, setting up an unified portal and ease of compliance, besides others.
Time of compensation
According to sources, the meeting is expected to devote maximum time of compensation mechanism beyond June next year. States are pressing for compensation beyond June as they say impact of the pandemic is still weighing heavy and they are getting less revenue.
GST was implemented with effect from July 1, 2017, with an assurance, inscribed in a legislature, that States will get compensation for five years, in case they face any revenue shortfall. It was said that if revenue growth rate is less than 14 per cent, the gap will be met through compensation mechanism. Fund for compensation will be provided through special cess on certain category of goods such as automobiles and tobacco products.
Due to less than expected growth of revenue during the last fiscal and this fiscal, the GST Council approved special borrowing by the Centre to be given back-to-back to States. Interest and repayment of principal amount will be met through collection of compensation cess. For FY 2020-21, total borrowing was around ₹ 1.10 lakh crore while for the current fiscal it is pegged at around ₹1.57 lakh crore, out of which ₹75,000 crore has already been borrowed and given to States.
The GST Council has already decided that levying of cess will continue beyond June 2022 until entire loan amount is repaid along with interest. States are looking for compensation beyond five years. It is expected that Centre will talk about more revenue enhancement measures through increasing compliance and rationalisation of duties.
Now the Council will need to consider two issues: compensation in case of revenue shortfall for a period beyond five years ending next year and compensation cess on certain items.
Focus points
Among the list of goods and services, decision on one particular proposal will get maximum attention and that is related with food apps such as Zomato and Swiggy. The proposal is to prescribe E-Commerce Operator (ECO) dealing in food delivery such as Swiggy and Zomato liable to pay GST on restaurant services supplied through them.
As on date, these apps are registered as Tax Collectors at Source (TCS). Another interesting proposal is to levy 18 per cent GST on coconut oil packed in a container with size of less than 1000 millilitres and 5 per cent on the oil above 1 litre.
GST Council is expected to consider options for National Anti-Profiteering Authority (NAA) whose four years term coming to end on November 30. Options include handing over profiteering matters to Competition Commission of India or any other body. Four-year terms of NAA has been marred by very high number of litigations challenging almost every anti-profiteering rules.
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