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GST Council Looking for GST Rationalisation
Context:
Union Finance Minister Nirmala Sitharaman said that the GST Council is currently reviewing GST rates for rationalisation on an item-by-item basis. She noted that this process had been delayed due to various factors, including the COVID-19 pandemic and state elections.
More in News:
- End of GST Compensation: Nirmala Sitharaman stated that GST compensation cannot continue beyond June 30, 2022, as mandated by law. Compensation payments were made for the first five years post-GST implementation.
- Discussion on Cess: The GST Council is currently discussing whether the compensation cess should continue, its rate, and the items it applies to.
Key aspects of GST tax rationalisation include:
Simplification of Tax Structure: The GST system currently has multiple tax slabs (0%, 5%, 12%, 18%, and 28%), which can cause confusion and misclassification of goods; thus, reducing the number of slabs aims to enhance clarity and ease compliance for both businesses and consumers.
Rate Adjustments:
- Essential Goods: In India, the GST rate for items like sanitary pads was reduced from 12% to 5% to make them more affordable.
- Cess on Luxury Goods: Certain luxury items, like cars, have higher GST rates (28%) along with an additional cess, but there have been discussions to rationalise these to boost sales during economic slowdowns.
Reducing Compliance Burdens:
- Quarterly Returns: The introduction of the QRMP (Quarterly Return Monthly Payment) scheme allows small taxpayers with a turnover of up to ₹5 crore to file returns quarterly, reducing the frequency of compliance.
- Simplified Forms: The government has made efforts to simplify GST return forms, like the introduction of GSTR-3B, which requires less detailed information compared to earlier forms.
- Streamlining Classification: The GST Council often releases clarifications and FAQs to resolve ambiguities about the classification of certain goods and services, such as distinguishing between composite and mixed supply.
Enhancing Technology:
- e-Invoicing: The implementation of e-invoicing mandates for businesses above a certain turnover has streamlined the invoicing process and improved compliance through real-time reporting.
- GST Portal Improvements: Continuous updates to the GST portal to enhance user experience and facilitate easier filing and payment processes.
Addressing Revenue Shortfalls:
- Incentives for Compliance: Introducing schemes like the “Vivad Se Vishwas” scheme to encourage voluntary compliance and settle disputes to improve revenue collection.
- Ensuring Input Tax Credit Efficiency: Matching Mechanism: The GST system has improved the matching of input tax credits with supplier filings to reduce fraudulent claims, enhancing taxpayer accountability.
GST Council
Establishment of the GST Council
- Constitutional Basis: Established under the 101st Amendment Act of 2016, which introduced GST in India.
- Article 279-A: This article empowers the President to constitute the GST Council.
Composition of the Council
- The GST Council consists of the Union Finance Minister as the Chairperson, the Union Minister of State for Revenue or Finance, and the Finance Ministers or nominated Ministers from the states.
- A Vice-Chairperson is elected from among the state members, while the Chairperson of the Central Board of Excise and Customs (CBEC) serves as a permanent invitee.
Working of the Council
- To conduct a meeting, the quorum requires half of the total members.
- Decisions are made by a three-fourths majority of weighted votes, with the central government holding one-third of the total votes and state governments combined holding two-thirds.
- Proceedings of the Council remain valid despite any vacancies or procedural irregularities.
Functions of the GST Council:
The GST Council is responsible for making recommendations to the central and state governments on the following matters:
- Tax Mergers: Taxes, cesses, and surcharges to be merged into GST.
- Goods and Services: Identification of items subject to GST or exempt from it.
- Model GST Laws: Principles of levy, apportionment of GST on inter-state trade, and governing place of supply.
- GST Rates: Establishing rates, including floor rates and bands.
- Special Rates: Recommendations for special rates during natural calamities or disasters.
- Northeastern States: Special provisions for specific states (e.g., Arunachal Pradesh, Jammu and Kashmir).
Other Functions of the Council
- GST on Petroleum Products: Recommend the date for GST implementation on petroleum and natural gas.
- Dispute Resolution: Establish mechanisms for adjudicating disputes between the centre and states or among states.
- Compensation Recommendations: Advice on compensation for states for revenue loss due to GST for five years, leading to parliamentary action.