Avoiding breakdown: On GST council meeting

Context:

After a gap of over seven months, the GST Council will meet in May 2021 as announced by the Union Finance Minister. The GST Council has taken possibly the longest pause in its functioning and since it is expected to meet every quarter, this does not set a good precedent.

Relevance:

GS-II: Polity and Governance (Constitutional Bodies, Government Interventions for Transparency and Accountability in governance)

Dimensions of the Article:

What is GST?

GST Council

Matters on which GST Council makes recommendations

Issues with GST Council through the Pandemic

What is GST?

GST is a destination-based indirect tax and is levied at the final consumption point. Under it, the final consumer of the goods and services bear the tax charged in the supply chain. GST is a transparent and fair system that prevents black money and corruption and promotes new governance culture.

GST Act

• Goods and Services Tax (GST) Act came into effect in 2017.
• Goods and Services Tax (GST) was introduced by the Government of India to boost the economic growth of India. GST is considered to be the biggest taxation reform in the history of the Indian economy.
• The power to make any changes in the GST law is in the hands of the GST Council. GST Council is headed by the Finance Minister. One hundred and first amendment act, 2016 introduced the GST in India in July 2017.

GST Council

• Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
• As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
• The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for the introduction of Goods and Services Tax in the country was introduced in the Parliament and passed by Rajya Sabha on 3rd August 2016 and by Lok Sabha on 8th August 2016.
• GST Council is an apex member committee to modify, reconcile or procure any law or regulation based on the context of goods and services tax in India.
• The GST council is responsible for any revision or enactment of rule or any rate changes of the goods and services in India.
• The council contains the following members:
  1. Union Finance Minister (as chairperson)
  2. Union Minister of States in charge of revenue or finance (as members)
  3. The ministers of states in charge of finance or taxation or other ministers as nominated by each state’s government (as members).

Matters on which GST Council makes recommendations

• Taxes, cesses, and surcharges levied by the Centre, States and local bodies which may be subsumed in the GST;
• Goods and services which may be subjected to or exempted from GST;
• Model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply;
• Threshold limit of turnover below which goods and services may be exempted from GST;
• Rates including floor rates with bands of GST;
• Special rates to raise additional resources during any natural calamity;
• Special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
• Any other matter relating to the goods and services tax, as the Council may decide.

Issues with GST Council through the Pandemic

Delay in meeting

• According to the Procedure and Conduct of Business Regulations of the GST council, the council shall meet at least once in every quarter of the financial year. But the gap between the 42nd and 43rd meeting of the council is over 7 months.

Refusing Demands from states to drop GST on COVID supplies

• States are demanding to drop the 12% tax on oxygen concentrators & 5% on vaccines that are being levied. The Centre is refusing this.
• The Centre’s argument for not dropping GST is that 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.
• According to the Centre, a 5% GST rate ensures that the manufacturer can utilise ITC (input tax credit) and claim a refund. Hence, an exemption to the vaccines from GST would be counterproductive without benefiting the consumer
• However, experts argue that Zero-rating (instead of exemption) makes the entire value chain of the supply exempt from tax. Not only is the output exempt from tax, but there is also no bar on availing credit of taxes paid on the input side for providing the output supply

Revenue Shortfall and GST compensation

• States are seeking higher compensation fearing revenue shortfall due to COVID 2nd wave.
• In the last meeting of the GST Council, the compensation formula was the main topic of discussion and it created strains in the centre-state fiscal relations. Later Centre borrowed around ₹1.1 lakh crore and passed it as a back-to-back loan to States for GST Compensation shortfall.
• In the 43rd meeting on May 2021, the council should arrive at a proper formula to share GST compensation (keeping in view of the revenue shortfall due to the 2nd wave of Covid-19) to avoid any further strains in the centre-state fiscal relations.

Dispute Resolution Mechanism

• The Constitution says GST Council can set up a mechanism to adjudicate any dispute between the Centre and states or between states on issues arising from the Council’s decisions. Such an adjudication/dispute resolution mechanism is yet to be set up.
• A dispute resolution mechanism can help to solve the differences between centre & states and strengthens fiscal federalism.

-Source: The Hindu