The 48th Goods and Services Tax (GST) council meeting is scheduled to be held on December 17, 2022, after a hiatus of more than five months. This meeting is much anticipated as many matters are pending to be addressed and also because it might be the last meeting before Union Budget for the fiscal year 2023-24 is presented. Therefore, any issues, approved by the Council, requiring legislative changes may be put up for Parliament’s approval as part of the Union Budget and subsequently before State legislatures.
One of the most important issues before the Council is about setting up of GST Appellate Tribunals, which has been a long-standing demand of the industry. As of now, the only option before the industry is to go to high courts, which are already burdened with a huge backlog of cases, by way of a writ petition against orders of the GST authorities. It is expected that the group of ministers (GoM) headed by the Haryana chief minister would lay a roadmap for setting up tribunals over the next few months. Once the Council approves the roadmap, it’s important that the administrative machinery is quickly put in place, to establish the tribunals in the next 3-6 months.
One of the options to reduce the workload on the tribunals would be to offer a one-time opportunity to the industry to voluntarily pay the past GST demands, without any interest and penalties, except in situations where fake invoicing is involved. With a reform like GST, it is natural that the initial years would see non-compliances due to ambiguity in laws or gaps in well-established processes. The industry would like to move on if the GST Council comes up with such a mechanism.
GST on Online Gaming
The online gaming sector, which is expected to be worth $5 billion by 2025, has been waiting for a while for a decision of the GoM headed by Meghalaya's chief minister as to how and on what value the GST would apply. The key debate is whether it is a game of ‘skill’ or ‘chance’ – games of skill attract GST at 18 percent at present while games of chance are taxed at 28 percent.
The other issue is whether GST would apply to the full value collected from customers including the contest entry fee paid by a player for participating in the game or the net amount retained as fees. Given the magnitude of the issue, the industry hopes for an early resolution, although it appears that a consensus is yet to emerge within GoM on various points.
Like online gaming, the crypto industry is also faced with GST disputes that need to be addressed. Here, the issue is more basic: the question is whether crypto should be treated as ‘goods’ or ‘services’ or neither. It may be worthwhile for the Council to create a GoM or a committee to examine all the issues of the sector and come up with a comprehensive law or guidance, as is being done by many countries.
The industry also needs some clarity on the road map for GST rate rationalisation, for which a GoM was set up under the chairmanship of the Karnataka chief minister. It seems that the current focus of the GoM is on correcting the inverted duty structure and not the overall rationalisation of four different slabs (of 5, 12, 18 and 28 percent) to three. Admittedly, this rationalisation is not easy, and the Council must balance the revenue collection, inflationary concerns and the need to simplify the structure. That said, the industry would want some indication of the roadmap and timelines. On inverted duty itself, many sectors such as electric vehicles and renewable energy need to be looked into.
Making Laws Simple
Last but not the least, is the simplification and rationalisation of GST laws. We have many learnings from the last five years of GST implementation. The areas of complexity and pain are well recognised now and there is a need to transform to the next level. These include increasing the ambit of GST to include petroleum products (possibly airline turbine fuel and natural gas to start with), decriminalising the GST laws (including raising the threshold limit for launching criminal proceedings) and rationalising the input tax credit provisions.
The last one needs to be looked into on priority. At present, there are several restrictions on claiming input credit. For instance, input credit on GST paid on construction of office premises or warehouse, which is given on lease or rent, and hence subject to GST, is not allowed. Similarly, GST paid on many employees-related expenses becomes a cost for businesses. This goes against the spirit of GST, which is based on the seamless flow of taxes.
Also, businesses need to maintain state-level balances of central and state GST, which they are not allowed to offset against each other. While allowing this between state GST balances might be difficult, there can be a common pool for say CGST and Integrated GST, both taxes are collected by the central government. It will enormously help the industry to manage cash flows and enhance competitiveness by leaving more money to be used for business.
For the last five years, the GST Council was mainly focused on stabilising the laws and increasing compliance. Now it is time to plan how the GST should look in the next five years - modern, tax-payer friendly and befitting India’s emerging status as the third largest global economy.
Pratik Jain is a Partner at Price Waterhouse & Co. His Twitter ID is @pratikdelhi (With inputs from Ankit Dawar, executive director, Price Waterhouse & Co). Views are personal, and do not represent the stand of this publication.
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