The Goods and Services Tax (GST) Council has decided to keep petroleum products out of the GST regime, while consumers will have to pay the compensation cess levied on products such as automobiles by March 2026 instead of July 2022, as originally was envisaged at the time. Implementation of indirect tax regime.
Union Finance and Corporate Affairs Minister Nirmala Sitharaman, who chaired the council’s first physical meeting in nearly two years, said the discussion on inclusion of petroleum products in the GST regime was purely on the orders of the Kerala High Court, in which It was suggested that the Council take it up in response to a writ petition.
“The council members very clearly stated that they do not want petroleum products to be included in GST at this point of time. We will report it to the court that the Council has discussed it as per their wish, and the GST Council felt that this is not the time to bring petroleum products under GST,” Ms Sitharaman said.
The minister also indicated that the central government is not inclined to consider the demand of some states to extend the period of five years, giving them several taxation powers to pave the way for the implementation of the GST regime. % Revenue growth assured. . “Legally, compensation was to be paid for five years till July 2022 with an assured level of revenue for the states,” Ms Sitharaman said.
While the GST regime was originally based on a revenue-neutral tax rate of 15.5%, Ms Sitharaman said the actual GST revenue was falling with the effective tax rate falling to 11.6%, on the various changes made in tax rates. because of. goods and services over the years.
“A detailed presentation was given on the revenue generation aspects, improvement in the inverse duty structure aspects and various ways in which the revenue neutral position, which was 15.5% at the time of introduction of GST, has steadily come down to 11.6%,” he said. said.
“(To be) revenue neutral is to put it at 15.5% and in fact, if the revenue is coming down and you feel it is not helping the overall GST collection, then at the time of introducing GST came, whether intentionally or unintentionally, brought about by reduction in the tax rates of certain items,” he said.
To increase the GST revenue, the Council has decided to form two Groups of Ministers (GoMs), which will have to recommend measures within two months. The first is tasked with reviewing issues of tax rate rationalization to correct discrepancies in the rate structure, while the second will use technology to improve compliance and monitoring. He said it will look into e-way bills, FASTag, compliance and composition schemes to plug the loopholes.
Compensation cess, levied on automobiles, tobacco products and aerated water over and above the original GST rate, was to be tapped to cover the difference between the states’ actual revenue and the 14% annual revenue growth for five years was promised to adopt. .
In 2020-21, the Center had borrowed ₹1.1 lakh crore from states to bridge the shortfall in GST compensation cess collection arising due to the COVID-19 pandemic, but some dues are still pending, Ms Sitharaman said. Similar borrowings have been made this year also at about ₹75,000 crore, while the remaining part of the year is expected to exceed ₹83,000 crore.
The council had last year decided that a compensation cess would be levied to meet the principal as well as the interest payable on these loans.
“As things stand now, the GST Compensation Cess should be extended from July 2022 to March 2026 to repay the principal and interest on back-to-back borrowings raised to meet the shortfall of GST compensation for the states in the previous year as well. Can go Like this year,” Ms Sitharaman said.
“The extension of Compensation Cess till March 2026 is expected to impact consumers as it will be collected from them,” commented Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co. He said there is a consensus in the council to keep petroleum products and natural gas outside the GST regime, contrary to the expectations of the general public.
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