The council's moves to ease compliance burden, reduce litigation is welcome. It has much more work to do.

On Saturday, the GST council, which met for the first time since the formation of the new Union government, tweaked tax rates on some items, and took a series of steps to bring down litigation and ease compliance for taxpayers. The Council has recommended waiving the interest and penalties on demand notices under Section 73 for three financial years if tax is fully paid by March 2025, bringing down the amounts of pre-deposit required to file an appeal, and introducing monetary limits for the tax department to file appeals. While these are steps in the right direction, other equally pressing issues warrant urgent attention.

One is the issue of rate rationalisation. In September 2021, the GST Council set up a Group of Ministers (GoM) to examine the matter. The committee had submitted an interim report in June 2022. As per reports, this issue is likely to be discussed when the Council meets next, with a “presentation on the work done so far and the unfinished agenda”. However, this involves maintaining a delicate balance. One proposal has been to merge two tax slabs. But, the Council would also need to keep in mind the issue of revenue neutrality. A study by the RBI had earlier shown that while the Chief Economic Advisor’s report had pegged the revenue neutral rate at 15.3 per cent, the weighted average GST rate stood at 14.4 per cent in May 2017, and subsequently dropped to 11.6 per cent by September 2019. The Council also needs to deliberate on the issue of getting items which are currently not under the GST framework, such as petroleum products, into its ambit. This will be challenging as both the Centre and the states get a sizeable portion of their revenues from petroleum taxes, and states levy their own taxes, exercising a degree of control.

Then there is the issue of the compensation cess. While originally the cess was levied for a five-year period ending on June 30, 2022, it was subsequently extended to March 31, 2026 to help repay the loans taken by the central government to compensate states for the loss in revenues during the pandemic. The Centre had borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22. However, reportedly, there are expectations that these loans could be paid off in 2025-26 itself. The Council would thus need to decide whether or not the cess should be discontinued thereafter. Considering the criticality of these issues, they need to be deliberated extensively in the GST council. The Centre must ensure that in these deliberations the concerns of state governments, especially their revenue-related anxieties are addressed, and a consensus is evolved on the measures that need to be taken.

 
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