<p>The 47th meeting of the Goods and Services Tax (GST) Council last week was considered to be the most important meeting of the Council since the new indirect tax regime came into force. It marked the completion of five years of the new system and provided an occasion to review its working. There has been criticism from the beginning that GST was introduced in a hurry and thus suffered from some infirmities. Revenue collections have risen in recent months, but the criticism is that they have not risen as much as they should have. From the beginning, the multiplicity of rates and exemptions have been a problem in a system that was intended to simplify taxes. There have been compliance issues, and complaints have been common. </p>.<p>The meeting ratified three of the four reports prepared by its ministerial committees on some aspects of the GST. The Council did well to form a separate Group of Ministers (GoM) to examine the long-pending demand for a GST appellate tribunal in view of the recurring disputes on many issues. Importantly, no decision was taken on the issue of continuing the GST compensation for states. Since the compensation period ended on June 30, “no decision” can mean that it could be decided later or that no more compensation would be paid. The five-year window for guaranteed revenue compensation to states was part of the original federal agreement on GST, but states have the grouse that they got the bad end of the bargain. The Centre has a strong technical argument for not extending the period but the states, weakened by the pandemic, have a sound case, too. As many as 16 states raised the issue of compensation and some of them demanded an extension. A lack of decision on the matter and the resulting uncertainty makes it difficult for states to do their financial planning. </p>.<p>The Council took some significant steps to simplify the GST structure by revising rates on some goods and services and removing exemptions on several mass-consumption packaged items with effect from July 18. There will be a rise in revenue due to the rate adjustments. The Council accepted the proposal of the GoM on rate rationalisation on the issue of inverted duty structure in some sectors and removed a number of goods and services from the exemption list. While the inclusion of more goods and services in the GST list is good, it can have the effect of stoking consumer inflation, which is already high. Some of the items which were removed from the exemption list, like food items, are sensitive from the inflation point of view.</p>
<p>The 47th meeting of the Goods and Services Tax (GST) Council last week was considered to be the most important meeting of the Council since the new indirect tax regime came into force. It marked the completion of five years of the new system and provided an occasion to review its working. There has been criticism from the beginning that GST was introduced in a hurry and thus suffered from some infirmities. Revenue collections have risen in recent months, but the criticism is that they have not risen as much as they should have. From the beginning, the multiplicity of rates and exemptions have been a problem in a system that was intended to simplify taxes. There have been compliance issues, and complaints have been common. </p>.<p>The meeting ratified three of the four reports prepared by its ministerial committees on some aspects of the GST. The Council did well to form a separate Group of Ministers (GoM) to examine the long-pending demand for a GST appellate tribunal in view of the recurring disputes on many issues. Importantly, no decision was taken on the issue of continuing the GST compensation for states. Since the compensation period ended on June 30, “no decision” can mean that it could be decided later or that no more compensation would be paid. The five-year window for guaranteed revenue compensation to states was part of the original federal agreement on GST, but states have the grouse that they got the bad end of the bargain. The Centre has a strong technical argument for not extending the period but the states, weakened by the pandemic, have a sound case, too. As many as 16 states raised the issue of compensation and some of them demanded an extension. A lack of decision on the matter and the resulting uncertainty makes it difficult for states to do their financial planning. </p>.<p>The Council took some significant steps to simplify the GST structure by revising rates on some goods and services and removing exemptions on several mass-consumption packaged items with effect from July 18. There will be a rise in revenue due to the rate adjustments. The Council accepted the proposal of the GoM on rate rationalisation on the issue of inverted duty structure in some sectors and removed a number of goods and services from the exemption list. While the inclusion of more goods and services in the GST list is good, it can have the effect of stoking consumer inflation, which is already high. Some of the items which were removed from the exemption list, like food items, are sensitive from the inflation point of view.</p>