On the one hand, industry players and companies facing the perils of the pandemic, were hoping for indirect tax measures from the government, on the other hand, the citizens of the country were eagerly awaiting the granting of tax breaks. collected from COVID. -19 vaccines and essential medical supplies. Additionally, state governments, facing a shortage of funds due to a sluggish economy coupled with a loss of income induced by the second wave of COVID-19, were anticipating discussions on the topic of cessation compensation.
In this article, we attempt to examine how the GST Council has met the expectations of various stakeholders, and what comes next on the governments’ agenda after this 43rd GST Council meeting.
With respect to COVID-related relief, a major change introduced by the Council was the granting of the IGST exemption to specified COVID -19 relief goods purchased for free distribution / donation to the government or an organization. relief approved by state authority. From the language used in the press release, it appears that relief items can be imported without paying the IGST, even by companies / businesses, if applicable, purchased to be donated to the government or a government authority. relief approved. It will be interesting to see if this understanding is also confirmed by the official notification that will be issued in this regard. It should be noted here that this change was in addition to other interest rate relief and streamlining of late fees, provided by the GST Council.
In addition, the Board, intending to ensure that any additional benefits it grants (other than those already provided) reach the Indian citizen, referred other matters relating to the granting of COVID-related relief. -19 to a Committee of Ministers (“GoM”) to be formed accordingly. The finance minister said this step was necessary as more in-depth discussions were needed to ensure that the benefit actually reaches the Indian citizen.
With that in mind, let’s take a look at the early agenda items that can be taken up by the GoM:
First, on the issue of exemption from the GST levied on COVID-19 vaccines, the government appears to be of the view that the majority of these supplies are made by the state or the Center on a free basis, and as of so that the final citizen does not have to bear the burden of these taxes, and also the GST paid by the State (States) and the Center on these supplies is returned to them as part of their revenue collection. As such, the GoM at its meeting may consider providing appropriate relief to the remaining segment of citizens who get vaccinated from private organizations on a pay-as-you-go basis.
Second, the Council has apparently extended the IGST exemption to COVID relief items imported to be donated to government or approved relief agencies. The GoM may further consider extending the benefit of the IGST exemption to COVID-19 goods purchased by private companies / organizations and distributed free of charge to their employees and family members, or even otherwise distributed to the within society. The benefit can also be extended to COVID-19 relief material imported by an individual on the basis of purchase, for personal consumption.
Finally, if the GST exemption for the provision of COVID-19 relief materials is not granted, the GoM may consider allowing input tax to businesses that participate in free donations of such materials.
Now, to move on to the other big item on the Council’s agenda, namely compensation, the expected decision of the GST Council to adopt last year’s formula for borrowing funds and to pass it as a back-to-back loan to the States, should have met the expectations of the various State governments. The government intends to borrow 1.58 lakh crores INR in total, which should provide much needed relief to state governments in the face of the income crisis they have had to face given the economic situation.
Regarding the broader issue of continuing compensation beyond the originally agreed period of five years, the GST Council has proactively clarified its intention to bring this discussion to a special session of the GST Council. the GST to be held shortly. This was necessary because the Council will have to consider a multitude of factors before reaching a final decision on this matter.
It is expected that the collection of the compensation tax will continue beyond June 2022, in particular to repay the loans contracted by the government in order to make up for the shortfall encountered by the State or States in the five years following the introduction of the GST. In view of this, the discussions in the special session are likely to focus on issues such as:
- That the continuation of the compensation beyond the five years initially agreed to be undertaken only to repay the loans contracted during the said five years, or for the purpose of further compensating the State for the loss of income beyond the initially agreed period of five years, i.e. beyond June 2022
- In the event that the GST Council decides to compensate states for loss of revenue beyond five years, the GST Council will also need to agree on the growth rate to be taken into account for purposes of calculating the deficit. state revenues.
- Duration for which the levy of the GST compensation tax must be extended
- If the existing rates for the compensation tax are to be maintained or if new rates are to be notified
- If inclusions or exclusions are to be made from the list of goods liable to compensation cease
For the purposes of the above discussion, the GST Council will also need to consider matters such as, if and when petroleum products or electricity should be included in the scope of the GST and the impact that this will have on state revenues, projected revenues from offsetting transfers to state deficits in the coming years, etc., before making final decisions.
Going back to the agenda items of the GST Council meeting, the GST Council also issued clarifications on various topics relating to the GST levy and GST rates. Here, the issue of correcting the reverse tariff structure applicable to sectors such as textiles, solar energy, fertilizers, etc. was not addressed as the Council felt it may not be the right time. In addition, other topics such as tax rationalization, reduction of GST rate for two-wheelers, etc. were also excluded from the discussion. That being said, these topics could be discussed later at future GST Council meetings.
Generally speaking, the GST Council has, in all fairness, identified all the relevant issues that needed to be addressed during this meeting, a few of which were resolved at the meeting itself and a few more are expected to be resolved in the near future in the future, GoM comments and decisions made at the special GST Council meeting.
(Abhishek Jain is Tax Partner, EY India. Oshank Mittal, Senior Tax Professional, EY also contributed to the article)