GST rate rejig to happen once a year states FM Nirmala Sitharaman

Hon’ble Union Finance Minister Nirmala Sitharaman has suggested that the GST Council will revise GST rates as a yearly exercise only. FM shared the government’s decision at a post-budget interaction with reporters in Kolkata last Sunday. Presently, the GST rates are reviewed once in a quarter at the GST Council meetings.

For the first time, FM claimed that constant changes in GST rates over the past two and a half years had steered an inverted tax structure in the GST system. It has resulted in costlier raw materials in comparison to the finished product leading to tax refund delays and other issues. Accordingly, when the tax rate of one item is reduced, it gives rise to a whole lot of other ripple effects affecting the refunds. 

Consequently, the trade and business stated that they are finding it difficult to account for the tax provisions for a given financial year. Likewise, governments (Centre and states) are not able to correctly assess the targetted GST revenue for the entire financial year.

The move to amend the GST rates in the middle of the year, especially as frequent as three months leads to uncertainty. The FM confirmed that the government has already laid the proposal before the GST Council. 

There have been around eight rounds of rate revisions since 1st of July 2017. It is another factor to affect the Centre’s revenue negatively. The calls for a GST rate cut turned intensive around the election season thereby pressurising the ruling government to cut GST rates as a spin.

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The decision to have a single annual revision of GST rates is welcomed. It would be a big step towards bringing stability in the GST system. Nevertheless, it is suggested that the time of bringing changes must be in line with the Union Budget held annually and should be given effect to from a new financial year. It allows businesses to easily adapt to the rate changes in terms of stock-keeping and invoicing. Further, the move can help bring some relaxations in the anti-profiteering rules, promoting the ease of doing business in India.

The GST Council had constituted a committee to examine a three-rate GST structure in the 38th GST Council meeting held on 18th of December 2019. Also, the tax rates for certain items had been reconsidered for a hike. It was put on hold after the official data pointed at a steep shrink in the supply of consumer goods by 18% in October 2019. 

Meanwhile, the time around the Union Budget 2020 saw a surge in demand for a rate cut from several quarters. FM Nirmala Sitharaman has requested that such industries submit their concerns about the rate revisions to the states. The member representatives from each state can later present these at the GST Council meetings.

Sources say that the GST Council may meet shortly by the end of February 2020 to deliberate on the GST rate structure revision. The Centre is contemplating to have lower rates of 5% and 12% merged into a single rate of around 12% and leave 18% and 28% rates untouched. The move if passed, will hurt the consumer sentiments and can further negatively hit the consumption levels in India that is already heading south.

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