Tax exemptions on some items are removed by the GST Council

On Tuesday, the GST Council authorized adjustments to some of the tax rates on goods and services with the goal of rationalizing the charge, even as non-BJP-ruled states prepared for a potential conflict with the federal government over the issue of a bigger part of tax income.

Numerous concerns relating to procedural compliance for GST-registered firms were discussed on Day 1 of the two-day meeting of the panel, which was presided over by Union Finance Minister Nirmala Sitharman and included representatives from all states and UTs, according to authorities.

The majority of the suggestions made by a group of ministers, including the suggestion to abolish the GST exemption on some services, were also adopted.

The demand for an extension to the compensation granted to states for income loss from their taxes, such as sales tax (VAT) being merged into a national GST together with a 28% tax on casinos, internet gambling, and horse racing, is set to be discussed by the Council on Wednesday.

States that are not governed by the BJP, like Chhattisgarh, want the compensation system to be prolonged or the states' share of GST income to rise from the present 50% to 70% to 80%.

On July 1, 2017, the Goods and Services Tax (GST) was implemented, and until June 2022, states were guaranteed compensation for any revenue losses caused by the GST implementation.

The states used a recent Supreme Court judgment to support their argument that the Council's decisions are not legally binding on the states and that any decision that is not unanimous might potentially cause the historic economic change to fail.

In its meeting on Tuesday, the Council approved a report from a group of state finance ministers that proposed a 5% GST on products including curd, lassi, puffed rice, and wheat flour that are often made by major businesses.

Currently, unpackaged and unlabeled food goods are tax-exempt, but branded and packaged food items are subject to a 5% GST. For a variety of products, including edible oil, coal, LED lights, printing/drawing ink, completed leather, and solar water heaters, it also suggested correcting the inverted duty structure.

The Council approved the state finance ministers' report on GST system improvements, which called for real-time bank account validation and biometric verification of high-risk taxpayers. In addition, instead of currently being tax-exempt, hotel rooms costing less than Rs 1,000 per day would be subject to a tax of 12%.

Rate rationalization is crucial to raising the weighted average GST rate, which has dropped to 11.6% from 14.4% at the time of introduction.

According to the information on revenue growth gathered for the Council meeting, only five out of the 31 states and UTs — Arunachal Pradesh, Manipur, Mizoram, Nagaland, and Sikkim — had a revenue rise greater than the safeguarded revenue rate for states under the GST in 2021–2022.

The Council advised states to choose the level over which the electronic bill is to be made necessary with reference to the e-way bill on the intra-state movement of gold, gold jewelry, and precious stones to curb evasion. The recommendation to raise the barrier to Rs 2 lakh and higher came from a group of state ministers.