GST Council May Discuss a COVID Cess on Pharmaceuticals, Power

The 45th Goods and Services Tax Council meeting is all set to take place this Friday in Lucknow. This will be the first meeting held in person since the beginning of the COVID-19 outbreak. So far, there have been reports that the matters discussed would include the compensation cess, tax concessions on COVID-19 relief materials, revenue augmentation measures, etc.  Now, the Council may also discuss the possibility of implementing a COVID cess on pharmaceuticals and the power sector in Sikkim and notifying a common electronic portal.

The Group of Ministers (GoM), being led by Karnataka Chief Minister Basavaraj Bommai, has supported Sikkim’s proposal of levying a 1% cess on intra-state supplies of pharmaceuticals for two years. They have also favoured giving Sikkim a special aid of Rs.300 crore per annum until 2023 to overcome losses due to the COVID-19 pandemic. Regarding power, which is outside the purview of GST,  the GoM has recommended that the state consider levying ten paise per unit of electricity consumed or sold.

According to the latest report, another key matter taken up at this Council meeting would be notifying a common electronic portal, i.e., http://gst.gov.in. The common portal will be used for registration, tax payments, IT returns, and the computation and settlement of IGST.

Another matter for discussion at this meeting is the compensation cess issue that has been ongoing for over a year now. The Council will likely extend cess collections beyond 2022. Compensation cess has been levied on sin goods since 2017 for five years to compensate states for the revenues lost due to GST implementation. While the Centre may now agree to continue the levy of this cess, they may likely push for a lower assumed revenue growth rate against the current 14% rate. 

The delay in giving out the compensation to the states is also a matter the Council may have to address. The Minister of State for Finance had informed that the GST compensation due from April 2020 to March 2021 was Rs.81,179 crore and for April to May 2021 was Rs.55,345 crore. For Maharashtra, Tamil Nadu, Karnataka and Uttar Pradesh, the amounts due are quite substantial. To avoid this issue coming up for discussion, the Council might release these funds before the meeting.

Some of the other matters recently reported on the agenda include the clarification on interest levied on ineligible input tax credit claims and the steel sector’s issues. Manufacturers in the steel sector face enforcement action, including blocking input tax credit and disruptions in supply due to fake invoicing by scrap dealers. Rationalising the GST rate on steel scrap from the current rate of 18% may also be discussed.

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For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in