Council agreed to streamline GST rates by raising tariffs on a host of goods and services (such as LED lamps, solar water heaters, leather, contract works services for specified works) to correct the inverted duty structure to avoid the accumulation of the upstream tax credit resulting in a working capital lock-up. Various exemptions on goods and services have also been removed, such as taxation of hotel rooms up to Rs 1,000 and hospital rooms (excluding intensive care) exceeding Rs 5,000 per day. The increase in GST rates may not be timely amid the high inflation prevailing in the country today.
The recommendation of a 28% sin rate on casinos, horse racing and online gaming has been deferred by the Council and the matter should be reconsidered. Taxing online games at 28% would have a negative impact on this growing industry. Thus, it is necessary to distinguish games of skill from games of chance before increasing the rate to 28%.
Various clarifications were made by the Council concerning the taxation of goods and services such as the 5% GST on electric vehicles equipped or not with a battery pack, the treatment of preferential location charges (CLP) to be part of the consideration property (which is not subject to the GST). Such a clarification would benefit the automotive industry to benefit from a preferential rate of 5% on the sale of electric vehicles even when they are sold without batteries. In addition, treating PLC as part of the land consideration will help the real estate sector to some extent, reducing costs to the consumer.
In addition, measures have also been taken to facilitate trade by removing the mandatory GST registration requirement for the supply of goods through e-commerce platforms by a person whose turnover is below the prescribed threshold. . In addition, mixed taxpayers are now allowed to operate through e-commerce platforms. Although the program is to be developed and will be tentatively implemented starting January 1, 2023, it is a long-awaited demand by the SME and MSME sectors to gain access to major e-commerce platforms.
Some of the other important trade facilitation measures include:
- It is proposed to allow reimbursement under a reverse fee structure on input services, which will reduce credit accumulation.
- Period from March 1, 2020 to February 28, 2022 proposed to be excluded from the statute of limitations for filing refund requests or issuing a request/order (by a competent officer) with respect to erroneous refunds. Extending the statute of limitations for refunds is likely to reduce ongoing litigation due to foreclosure of refund denial and increase taxpayers’ working capital needs.
The Council also proposed to clarify some of the following aspects:
- Various issues relating to the interpretation of the provisions relating to the restriction on the use of ITCs
- Issuance of perquisites provided by an employer to employees pursuant to a contractual agreement
The long-awaited requirement to establish a tribunal under the GST Act was also debated, and the Council recommended setting up a ministerial group to make recommendations for appropriate amendments to the CGST Act. The establishment of the Tribunal will help taxpayers to file claims in the Tribunal and reduce the burden of litigation in various High Courts across India.
Since the introduction of the GST, significant achievements have been made over the past five years in support of the government’s âone nation, one taxâ philosophy. The increased role of technology, the common GSTN portal for interaction between authorities and taxpayers has changed the perspective of indirect taxes. The industry viewed the transition to the GST as a positive step and appreciated the government’s initiative on automating tax compliance. Although significant progress has been seen in streamlining and simplifying the GST system, this Council meeting, just ahead of the fifth anniversary of the GST in India, also addressed multiple issues requiring government attention.
(The author is partner, Deloitte India)