GST Council may draw flak for inverted duty correction
NEWDELHI: The government move to correct inverted duty structure prevailing in the Goods and Services Tax (GST) regime that could see a spike in prices of certain products such as textiles, footwear, fertilisers and mobiles may see a stiff resistance at the GST Council’s meeting from finance ministers of the Opposition states on Saturday, officials with direct knowledge of the matter said.
Correction of inverted duty structure by increasing tax rates on certain items is part of the agenda for the 39th meeting of the GST Council. The issue is unlikely to be cleared unanimously by the council as many members have questioned its timing, they said, requesting anonymity. The federal council, which has representation from states, is the apex decision-making body on GST matters, and is chaired by the Union finance minister. Barring one instance related to tax on lotteries, its decisions have always been unanimous.
At least three states have expressed their reservation on raising prices of goods and services at a time when the global economy is going through an uncertain phase due to the coronavirus pandemic that has also spooked the Indian economy, the officials said.
In a letter to finance minister Nirmala Sitharaman, West Bengal finance minister Amit Mitra on Friday urged not to make any changes in the rate structure during these “perilous economic times, particularly keeping in mind the interest of the common people”.
“Markets in India are facing a double whammy with stagflation on one hand and the looming effects of the coronavirus outbreak. The latter is crippling many economies across the world and beginning to affect supply chains and consumer spending in India as well,” he said in the letter.
The Indian economy grew at 4.7% in the quarter ending December 2019. The gross domestic product (GDP) growth had been falling continuously for six quarters since June 2018 and experts fear that the economy would perform poorly in the current quarter due to disruptions from the coronavirus outbreak, which has now engulfed India.
Under the duty structure, higher tax is levied on inputs compared to the finished good that makes it difficult for manufacturers to avail input tax credit (ITC). Presently, certain manufactured goods attract GST rates of 5% or 12%, while levies on their inputs are at higher levels of 18% or 28%.
In GST, ideally the inputs and raw material should have lower rate than finished goods. Otherwise, a taxpayer is not able to fully utilise the ITC and the accumulated unutilised ITC becomes cost for them unless refunded by the government.