A Group of Ministers (GoM) formed for GST rate rationalisation by the GST Council has been entrusted with cutting down the number of GST exemptions on certain goods and services. It may also rectify the inverted tax structure in the upcoming 47th GST Council meeting.
The panel of ministers may meet before the GST Council meets. It is being speculated that the GST rate restructuring measure may be pushed till the inflation pressure gets released. The 47th GST Council meeting can happen later in June 2022 or at the beginning of July 2022.
The Council has considered the GoM’s recommendations for reviewing the list of exemptions of goods. Presently, 149 types of goods and 87 types of services are not subject to the GST levy. Further, the Council aims to remove any tax anomalies involving higher tax rates on inputs than the finished goods.
The Council also affirmed the possibility of increasing the lowest slab GST rate from 5% to 7/8%, keeping additional tax classes out of the review. The panel will also deliberate the cases not needing any GST rate rejig.
Karnataka Chief Minister Basavaraj Bommai leads the ministerial panel of GoM. He will review some proposals received from the fitment committee about the inverted tax structure. Accordingly, he might recommend that particular rates be revised where it causes an inverted tax structure in various industries. The exempted items, such as the unbranded and unpacked foods where no GST is levied, could be chosen for review by the GoM.
When the GST rate for the raw material is more than that of the finished goods, then the inverted tax structure prevails. It leads to an Input Tax Credit (ITC) accumulation affecting the business’s cash flows. Hence, such a structure must be corrected. While some items have already been corrected, the GoM will build a roadmap to tackle more profound issues. These may primarily include textiles and electric vehicles.
Other secondary issues related to inverted tax structure, such as non-refund of tax credits on capital goods and input services, the extent of ITC refund and formula shall also be reviewed by the panel.
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Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.