GST COMPENSATION: STATES MAY SEEK 5-YR EXTENSION AT MEET

Tax sops on Covid supplies to also be on agenda at Council meet

States might seek an extension of up to five years on protected revenues beyond June 2022 at the upcoming Goods and Services Tax (GST) Council meeting, which will take place on Friday after a gap of over seven months.

Besides, states will also pitch for a cut in GST rates on key Covid-19-related medical supplies. However, the Centre appears averse to both demands on grounds of feasibility.

The Council, chaired by Union Finance Minister Nirmala Sitharaman, may also take up reduction in late fees for late filing of GSTR 3B returns since July 2017, which may be seen as an amnesty scheme to clean up pendency in return filing. Other agenda items include converting quarterly filing and monthly payment for taxpayers with a turnover of less than ~5 crore to quarterly returns and payments. It will also discuss levy of Covid cess on pharmaceutical and power sector in Sikkim.

States have also been asked to provide manpower to the GST Network with SGST experience for smooth functioning of the IT backbone. The Council may also take a call on the levy of 12 per cent GST on import of oxygen concentrators for personal use, following the Delhi High Court’s verdict last week that the levy was “unconstitutional”, pointing out that oxygen concentrators are life-saving devices during the pandemic.

Chhattisgarh Health Minister TS Singh Deo said he will raise the issue of extension of GST Compensation period. He added that he will also pitch for exemption of GST on Covid-related medical supplies. “The projected income for states should be extended for another five years. When the GST Council was constituted, it was assumed that states will become self-reliant in

five years and won’t need compensation. But it hasn’t worked out like that. The economy has slowed down,” said Deo.

A Union government official said extending GST compensation may not be feasible as it is resorting to market borrowing to make up for last year’s cess shortfall. “Besides, 14 per cent annual growth rate in revenue is not realistic, it is too high,” said the official.

States will discuss measures to meet higher compensation requirement arising due to the second wave. West Bengal Finance Minister Amit Mitra had recently flagged this concern. “Compensation period must be extended beyond 5 years as states are already struggling with finances,” said a West Bengal state government official.

Economists estimate the shortfall at ~1.5-2 trillion in 202122, compared with ~2.35 trillion in the previous year, which accounts for the impact of Covid and GST implementation.

States were assured of a 14 per cent increase in their annual revenue for five years (up to 2022) and any revenue shortfall would be met through the compensation cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal, and tobacco.

However, the Centre is not too keen, as exempting GST or tinkering with rates on these products may disturb other supply chains. “Exempting vaccines from GST will help no one. More than half of the vaccines are being procured by the Centre and states, and states get 70 per cent of the GST (including the 42 per cent devolution). If states want to discuss that in the Council, let there be a collective decision on GST rates on key Covid-19 related supplies,” said a senior government official.

Punjab FM Manpreet Singh Badal is also expected to raise the issue of appointing a vice-chairman of the Council from among the states.