GST Council meeting today: Here are the five key expectations

New Delhi: Goods and Services Tax (GST) Council is meeting in the capital after over eight months to discuss indirect tax matters, including further strengthening the tax ecosystem to make it foolproof. 

The indirect tax body analyzes trends in tax revenue collection at its meetings, takes up proposals from panels of central and state officials for changes to the law and to tax rates, and ratifies urgent decisions taken by officials since its previous meeting. Mint takes a look at what is on the table at today’s meeting.

Law change on scope of GST

The Council is expected to clear the text of legislative amendments to Central, State and Integrated GST laws to exclude extra-neutral alcohol (ENA), the main ingredient of liquor, from the scope of GST so that this remains within the regime of state-level excise duty and Value Added Tax (VAT).  This highly purified form of alcohol produced from fermented molasses or grain is not fit for drinking directly and its taxation has been a subject of litigation given that liquor is exempt from GST and is covered under state excise and VAT laws. The Council’s decision will reduce litigation and give certainty to the industry. 

Duty relief

Central and state finance ministers are expected to add a new provision to GST laws to enable tax officials to close the books on certain cases without further demand, recovery or refund on an “as is basis.” This will help in achieving closure of litigation and disputes in certain cases, especially those seen in the alcoholic spirits industry. If approved, these proposals would become part of the Finance Bill to be tabled in Parliament next month. 

Ease of doing business

Steps meant to improve the ease of doing business, including a possible reduction in the amount to be deposited at the GST Appellate Tribunal by taxpayers for challenging administrative decisions, are on the table. The proposal is to reduce the amount to be deposited from 10% of the tax demand, currently specified in law. Further clarifications on the taxation of corporate guarantees and other issues arising from court cases are also expected from the meeting. The Council had said last October that corporate guarantees are to be taxed at either 1% of their value or 18% of the fee paid to the guarantor when it is given to a related party. Experts expect clarity on the periodicity of taxation on such guarantees. Certain legislative changes to bring clarity on the time of supply of a service is also expected. 

Tightening of the GST registration system

The Council has been exploring the matching of data from various central and state agencies to detect instances of tax evasion and also to make GST registration more foolproof. Strengthening the verification of the person seeking GST registration is likely to avoid instances of violations relating to mis-use of tax credits. Addressing this issue leveraging technology and data analytics has so far helped the authorities to check tax evasion to a great extent. 

Future direction of GST

Although GST revenue collection has been buoyant, Central and state ministers need to decide on two key issues relating to the future direction of GST. One is the need for tax rate rationalisation and correcting the inverted duty structure. 

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In sectors, for example, textiles, where the finished product attracts lesser tax rate than that of the inputs going into those products, the duty anomaly acts as a disincentive for new investments. While good economics would warrant a correction, the optics of it makes it hard for the Council to take a decision because of the sensitive nature of the mass-use products. 

The second aspect concerns a decision on the future of the GST compensation cess levied on items like cars and aerated drinks. The Council must decide whether tax rates on these items need to be adjusted once the cess expires in March 2026 or before. Policymakers are likely to take more time to decide on these issues.

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