No change likely in GST on mass consumption goods
The shadow of the Gujarat assembly election later this year and high inflation will loom over the two-day meeting of the Goods and Services Tax (GST) Council starting on Tuesday, and force it to defer a plan to raise GST on items of mass consumption, three people familiar with the matter said on condition of anonymity.
The people added that the council could decide to remove certain tax exemptions, reduce compliance burden, establish an institutional mechanism for dispute resolution, and impose higher duties on online gaming.
States, especially those ruled by non-nda (National Democratic Alliance) parties are expected to push for extending the compensation period for another three to five years, they said. The compensation period, with an assured 14% annual growth in revenue, ends June 30.
The 47th Council meeting, which is being held in Chandigarh on Tuesday and Wednesday, may also consider elaborate, item-wise tax rate rationalisation proposals to correct inverted duty structure and remove imprudent tax exemptions, they added.
“While rates could be increased for certain items such as online gaming etc, it is unlikely that GST on items of mass consumption would be raised immediately due to political and economic reasons,” one of the three, who is associated with the rate rationalisation exercise, said. The council is expected to impose 28% GST on online gaming at par with services such as casinos, race-course, and gambling.
Experts said the council may avoid any major rate hike that would have an adverse impact on the economy.
“A major rate rationalisation exercise could lead to inflationary pressures as the process would entail increasing the rates on certain products. Since inflation control is one of the key priorities at present, we could see the rate rationalisation exercise deferred to a later period when inflation has cooled down,” said MS Mani, partner at Deloitte India.
India’s retail inflation surged to a 95-month high of 7.8% in April, cooled to 7.04% in May, but is still well above the Reserve Bank of India’s (RBI’S) official upper tolerance level of 6%. Any attempt to change rates will also have political implications in the crucial assembly elections of Gujarat, which is scheduled for December, the second person said.
“Such political considerations cannot be ignored. Recently, an emergency session of the council was convened for only one agenda item on behest of Gujarat and the decision to raise taxes on textiles was postponed.”
While the legally binding fiveyear period of compensation ends on June 30, the Union government on June 24 notified that the compensation cess on sin goods and luxury items will continue till March 31, 2026, with the amount thus raised being exclusively used to retire debt (₹2.69 lakh crore) raised from the market to compensate states during the pandemic period—2020-21 and 2021-22.