10 things to expect from the GST Council meeting

Major expectations from the May-21 GST Council Meet

May 25, 2021 11:05 IST India Infoline News Service

In the last one year, GST Council meetings have become few and far between; with even the few meetings happening over video conference. When the GST Council meets after 7 months on 28th May, it will be significant for three reasons. Remember, this is the first GST Council meet after the COVID resurgence in Apr-21. Secondly, this meet comes amidst persistent demands for GST relief on key inputs needed for COVID-19 relief.

Thirdly, the government finances are an open-book. With 9.6% fiscal deficit in FY21 and 6.8% fiscal deficit expected in FY22, government finances are already under a lot of strain. The finance minister will surely have a tightrope walk to balance long expectations and tepid funding sources. Here are some of the key expectations from the 28 May GST Council Meet.

Major expectations from the May-21 GST Council Meet

Here is the broad agenda of items to be discussed in the GST Council meet on 28th May.

a) The big focus is likely to be on providing relief on indirect taxes levied on COVID-19 vaccines and critical medical supplies. It is hard to fathom why the decision has not been taken till now, despite rapid inoculation being a top priority in India.

b) Timely compensation to states will be another contentious issue. On the previous occasion, the central government asked states to borrow their share from the market with guarantee from the central government. Such ad-hoc measures are best avoided.

c) What about bringing petrol under GST? That still remains a contentious issue as states have to buy into this argument. For now, it looks like this GST Council meet on 28 May could lay the foundation for the debate on bringing petrol under GST.

d) Continuing on the subject of bringing petrol under GST, it assumes significance with petrol prices approaching Rs100/litre in many states including the commercial capital of Mumbai. GST inclusion is likely to temper petrol prices.

e) As a war-time measure, the GST Council could set GST on products like hand sanitizers, oximeters and oxygen concentrators at zero to drastically bring down the cost of fighting COVID. There have also been demands to remove the anomaly about importing of oxygen concentrators for private use, which needs to be rationalized. This 12% levy was imposed on 01 May but has been quashed by the Delhi High Court.

f) Today, when companies spend for COVID relief for their employees, there is no special tax credit available which would incentivise more companies to join the bandwagon. One suggestion is to make all identifiable COVID-related expenses incurred for the welfare of employers eligible for input tax credit.

g) The Council will also take up the request from the state of Delhi for reduction of the 5% GST on vaccines and other GST levies on all forms of COVID relief material. If this is approved, it can become the template across all states. It is likely to substantially reduce the burden of vaccination and expand the drive faster.

h) An important aspect on the agenda will be the payment of dues to the states. For example, the centre still owes Rs63,000cr in the form of GST share. Last year, the transfer was not done due to budgetary constraints but states will want a firm commitment from the central government on this issue. This is likely to be a majorly contentious issue in the May GST Council meet.

i) Apart from the issue of quick release of Rs63,000cr, the states are also likely to ask for an extension of the five year period after which the centre’s guaranteed compensation to the states comes to an end. The states are likely to make this demand considering that nearly 2 years out of the last five years was lost battling COVID.

j) Finally, GST Council is also expected to address the GST refunds and the woes of exporters. Industries like hotels, tourism and retail are the worst hit by the pandemic. The Council may have to consider immediate release of GST refunds to these sectors on a priority basis. In the case of exporters like the G&J sector, there is nearly Rs.1,000 crore stuck as input tax credits. These have to release on priority to ease liquidity.

Apart from all these expectations, there are the usual expectations of more leeway on GST compliance. The Council will again face demands for extension of compliance time lines, especially considering that such leeway has been given to income tax filers. Business associations have also been lobbying with the Council for total waiver of interest and late fee for the COVID months. Of course, it remains to be seen how many of these demands the Finance Minister can really accede to, considering the tightrope that she is already walking.

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