Home Agenda explain | What’s next on the agenda for the GST system?

explain | What’s next on the agenda for the GST system?


Why have rates been increased for certain consumer items? When will the issue of State compensation be decided?

Why have rates been increased for certain consumer items? When will the issue of State compensation be decided?

The story so far: The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, met for the first time in 2022 for a two-day marathon meeting this week, just before the fifth anniversary of the GST on July 1. The Council approved three reports from the ministerial groups, one of which will lead to changes in the tax rates applicable to several articles.

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What are the goods and services whose prices have been increased?

Based on recommendations made by a Group of Ministers (GoM) headed by the Chief Minister of Karnataka, Basavaraj Bommai, the GST Board removed exemptions on several goods and services, removed preferential rates granted for a few goods and changed tax rates up or down. in other cases. Healthcare devices such as orthopedic splints, intraocular lenses, ostomy appliances, will now be taxed at 5% instead of 12%. The use of in vitro fertilization (IVF) services has been exempted, the rental of trucks for goods will be taxed at 12% (instead of 18%) and the GST on cable cars has been lowered from 18% to 5% . However, stem cell preservation services will no longer be tax exempt. Hospital room rents over ₹5,000 per day, excluding ICU or ICU patients, will now be taxed at 5%. Tetra Pak, used for a growing number of goods as an alternative to plastic packaging, will now be taxed at 18%, up from 12%, which could drive up the costs of several consumer goods. The same 18% rate will apply to tar of all varieties, so expect road construction costs to increase as well. The Council also increased rates on more than 17 goods and services, where end products had a lower tax rate than their inputs and led to an anomaly called reverse duty structures. Among these, the GST rate on 10 items has been increased to 18% from 5% or 12% so far, such as writing, drawing and printing ink, knives, forks, spoons, pencil sharpeners, grading machines for agricultural products. as well as eggs and dairy products, LED lamps, solar water heaters and works contracts for the construction of roads, railways, metro projects and crematoria. Last but not least, the GST levied on cut and polished diamonds has been raised from 0.25% to 1.5%.

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Why is it important?

The Reserve Bank of India forecasts that India’s inflation rate, which hit an eight-year high of 7.8% in April and remained above 7% in May, will average 6, 7% in 2022-23. Ms Sitharaman said Council members were aware of inflation issues while approving the rate changes. It is too early to discern the possible impact of the new tax rates on the overall evolution of inflation and the share that will be taken into account in the official data. With all of these rate changes set to take effect from July 18, any impact will only be able to be gauged when the August consumer inflation figures are released in the second week of September. Even then, with the prices of several commodities, including crude oil, remaining high, it may not be straightforward to distill the effect of the new GST rates on price increases.

Additionally, the panel led by Mr. Bommai has been given an additional three months to delve into its other mandate which could have a wider impact on consumers and businesses – streamlining multiple bands of GST rates such as 5 %, 12%, 18% and 28% % and to increase the levies to reinforce the incomes which have not lived up to expectations. Part of the reason for the drop in revenue, aside from the slowing economy in recent years, was the repeated reduction in GST rates of several items ahead of critical elections. However, officials concede inflation concerns do not make this an opportune time for broader rate hikes.

What awaits us?

The Council will meet again in August to finalize GST rates for online gambling, horse racing and casinos – a decision it postponed this time for further consultation with stakeholders. It could also initiate the process of forming an appeals tribunal to resolve GST disputes, envisioned since its launch in July 2017. With more than a dozen states urging the Center to pursue compensation for the GST paid to them for the first five years of the GST system. as revenue streams have been impacted by the pandemic, it is hoped that clarity will be provided on this issue by the August meeting. Any expansion of assured revenue to states, however, could mean additional pain for consumers and industry, who already have to fork out the GST offset tax levied on goods such as cars and soft drinks, up to in March 2026, instead of sunset in June 2022. promised earlier.