GST Rate Changes On Agenda; Status Quo On Over 215 Items Likely

At its meeting in Chandigarh this week, the all-powerful GST Council is likely to change goods and services tax (GST) rates on a handful of items. It may go with the officers' panel's recommendations to maintain the status quo in rates of over 215 items.

The 47th meeting of the GST Council, headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states and UTs, is scheduled for June 28-29. The Council is meeting after a gap of six months.

Apart from rate rationalisation, the Council is expected to see a stormy discussion around compensation payout to states, with Opposition-ruled states aggressively pushing for its continuation beyond the five years ending in June.

Major changes proposed by the officers' panel or the Fitment Committee in the tax rates are a uniform 5 per cent GST rate on prostheses (artificial limbs) and orthopaedic implants (trauma, spine, and arthroplasty implants). Besides, orthoses (splints, braces, belts and callipers) have been proposed in the lowest bracket of 5 per cent.

Currently, these goods attract a tax rate of 12 or 5 per cent.

The committee has also recommended a reduction in GST rate on ropeway travel to 5 per cent from 18 per cent currently, with ITC, Himachal Pradesh, placing this request before the GST Council in September last year.

It also suggested that the GST rate on ostomy appliances (including pouch or flange, stoma adhesive paste, barrier cream, irrigator kit, sleeves, belt, and micro-pore tapes) should be reduced to 5 per cent, from 12 per cent at present.

Also, tax rates on sewage-treated water will likely be cut to 'nil'. An ambiguity in wordings in the GST rates slab has led to two orders from Authority for Advance Ruling (AAR) stating that sewage-treated water attracts an 18 per cent GST rate.

The Fitment Committee also recommended that the tax rate be hiked on Tetra Pak to 18 per cent, from 12 per cent.

Also, a clarification would be issued on GST rates on electric vehicles to state that EVs, whether fitted with batteries or not, would attract a 5 per cent tax rate.

Besides, the committee has clarified that Nicotine Polarilex Gum, commonly used to aid in smoking cessation in adults, attracts 18 per cent GST.

After analysing demands from stakeholders, the committee gives its recommendation regarding tax rates in every Council meeting. This time, it has been suggested that the status quo in tax rates be maintained in over 215 goods and services.

The GST Council will also be presented two reports of the Group of state finance ministers.

The GoM on rate rationalisation will give its interim report suggesting some correction in inverted duty structure and doing away with some exemptions, while the other panel for deciding rates on casinos, horse racing and online gaming is likely to suggest the highest 28 per cent slab for such activities.

Besides rate rationalisation, the Council is likely to see Opposition-ruled states aggressively pushing for the continuation of compensation for revenue loss. The Centre will defend its case for ending compensation in June, as was promised at the time of the launch of GST, by citing a tight revenue position.

After the 45th GST Council meeting in Lucknow in September last year, the Union Finance Minister had said the regime of paying compensation to states for revenue shortfall resulting from subsuming their taxes such as VAT in the uniform national tax GST would end in June 2022.

However, the compensation cess levied on luxury and demerit goods will continue to be collected till March 2026 to repay the borrowings done in 2020-21 and 2021-22 to compensate states for GST revenue loss.

Goods and Services Tax (GST) was introduced in the country with effect on July 1, 2017, and states were assured of compensation for the loss of any revenue arising on account of the implementation of GST for five years.

Though states' protected revenue has been growing at 14 per cent compounded growth, the cess collection did not increase in the same proportion; COVID-19 further increased the gap between projected revenue and the actual revenue receipt, including a reduction in cess collection.

To meet the resource gap of the states due to a shortage in the release of compensation, the Centre has borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans to meet a part of the shortfall in cess collection.

The Centre has released the full GST compensation payable to states until May 31, 2022.