States to seek tax cuts and extension of compensation: What to expect from 43rd GST council meeting

Another issue that is likely to come up during the 43rd GST Council meeting is an extension for GST compensation that states are entitled to receive from the Centre government. [Image: Shutterstock]

After almost seven months, a crucial Goods and Sevices Tax Council meeting, chaired by Finance Minister Nirmala Sitharaman, will be held on May 28.

As the second Covid-19 wave ravages the country, a number of states have sought GST rate cuts on essential Covid supplies, and are expected to push for the same in the upcoming meeting. However, it is unlikely that the finance minister would agree to such a proposal.

The Centre has already exempted integrated GST on a number of imported items like concentrators, medical-grade oxygen, ventilators, and life-saving drugs which come in through the donation route.

States like Punjab, West Bengal, Chhattisgarh and Delhi have called for GST Council meetings to discuss the issue.

Sitharaman also cleared the Finance Ministry's stance on the issue when she responded, in a series of tweets, to a letter from West Bengal Chief Minister Mamata Banerjee that exempting domestically produced and commercially imported items from GST will lead to manufacturers unable to avail of the input tax credit, which in turn could lead to higher prices for customers.

"If full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer/citizen by increasing the price," Sitharaman said.

However, the Delhi High court also reprimanded the Centre government for imposition of 12 percent IGST on oxygen concentrators imported for personal use, calling it unconstitutional. The High Court bench also quashed Finance Ministry's notification issued on May 1 for levying 12 percent IGST on oxygen concentrators imported for personal use or gift.

Another issue that is likely to come up during the 43rd GST Council meeting is an extension for GST compensation that states are entitled to receive from the Centre government.

As states suffer cash woes amid the COVID-19 pandemic, the states may seek an extension of five years for compensation cess, said a Business Standard report, adding that the centre may not be keen on such an extension on grounds of feasibility.

Citing a government source, the report said that extending GST compensation may not be a feasible option for the central government as it is already being forced to borrow from the market to compensate for last year’s shortfall in cess.

Currently, the Centre compensates the states for any loss in revenue due to the implementation of the GST. Compensation is effective until the expiry of five years when the state GST laws came into force. The states may now seek an extension of five more years as they suffer budget issues amid the reeling pandemic.

It may also look at the reduction of late fees for filing of GSTR 3B returns since July 2017, it added.

Moneycontrol could not independently verify the report.

However, the merger of the 12 percent and 18 percent slab rates into a universal slab rate is not likely to be taken up in the upcoming council meeting, Mint reported.