Centre to take GST Council into confidence

NEW DELHI: The Centre will take the Goods and Services Tax (GST) Council into confidence before announcing any major GST-related decision in the forthcoming budget after some council members criticised it for announcing a cut in the tax on electric vehicles in this year’s Union budget without discussing the matter at the council, two government officials said on condition of anonymity.

The issue was raised by some member states in the GST Council meeting held on July 27, the officials said. The GST Council, chaired by the finance minister, includes the finance ministers of states.

“Some members did raise this matter at the meeting chaired by the Union finance minister, saying that neither the Centre nor states have power to unilaterally announce GST rate reductions or offer any exemption because they have already surrendered the power to the federal body (GST Council) and any such move should be avoided,” one of the officials explained.

While presenting the full budget for FY20 in the Parliament on July 5, finance minister Nirmala Sitharaman announced the government’s move to substantially reduce the GST rate on electrical vehicles.

“Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of electric vehicles. Inclusion of solar storage batteries and charging infrastructure in the above scheme will boost our efforts. Government has already moved GST Council to lower the GST rate on electric vehicles from 12% to 5%,” Sitharaman said in her maiden budget speech.

The two officials said the preparation for Budget FY21 has begun and the finance ministry is all set to process various tax and non-tax proposals from different arms of the government as well as the industry. It has started holding pre-budget meetings and deliberations on the revised estimate (RE) since October 14.

The first official said that on July 27, when the issue was raised at the GST Council meeting, there were also some members who said they had no issue with the budget speech because the tax cut on electric vehicles was mentioned only as a proposal before the Council, and not as a done deal.

As it turned out, the Council announced its decision to reduce GST rates on electric vehicles and chargers to 5% and exempted hiring of electric buses from GST.

Rachit Sharma, DGM, Taxmann said, “Since reduction in GST rates will directly impact revenue of states, it would be ideal that Centre must deliberate any proposed reduction in GST rates in GST Council and decisions shall be approved in GST Council before announcement in budget.”