A plan to merge goods and services tax (GST) slabs of 12% and 18% into a single rate that will apply to most goods is expected to get delayed, while the GST compensation cess levied on items like cars may be extended, three officials aware of talks between central and state governments said.
Friday’s GST Council meeting is expected to discuss a host of issues flagged by states relating to tax rates on medical supplies, in addition to the GST compensation mechanism for FY22.
The meeting’s agenda will be ready by Tuesday, a government official, one of the three cited above, said on condition of anonymity.
While the plan to merge the two slabs is under consideration for several months, this will imply a change in the design of the GST structure itself and impact some of the goods, said a second official with a state government.
While a merged GST rate somewhere in the middle could reduce the number of slabs and lower the tax burden on items in the 18% rate, it could lead to a higher burden on items that fall in the 12% slab, which includes certain medical equipment, medical-grade oxygen and processed food.
The GST Council, which meets after seven months, is expected to discuss whether a borrowing scheme put in place last fiscal to meet states’ GST compensation requirement needs to be continued this year as well.
The last GST Council meeting in October 2020 made an in-principle decision to extend the GST cess beyond June 2022 to help pay for the borrowing made in FY21 to compensate states.
The Council had approved that borrowing arrangement only for FY21. Continuing the same in the current fiscal also means that the cess will stay for a longer period.
Experts said tax rate adjustments on medical supplies required in the battle against covid-19 are expected to be the priority for discussions in the GST Council meeting.
“Rate cut on vaccines and on imported oxygen concentrators meant for personal use, clarity on the availability of input tax credit on medical supplies donated by businesses or given to employees for personal use are among the key issues that many expect to receive attention,” said Abhishek Jain, tax partner, EY.
States such as Odisha, Punjab and West Bengal have been drawing the Centre’s attention to GST issues that need to be discussed urgently.
Odisha chief minister Naveen Patnaik wrote to Union finance minister Nirmala Sitharaman earlier this month seeking GST exemption to covid-19 vaccines and fiscal support to states to fight the pandemic.
Punjab finance minister Manpreet Singh Badal has expressed displeasure at the fact that important rule changes such as restricting input tax credits were being taken by a panel of officers without discussions in the Council.
Badal has sought a discussion on how to create an environment of “terror-free GST compliance”.
Sitharaman earlier this month explained that if full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer by increasing the retail price.
Experts, however, said zero-rating of GST, instead of an outright exemption, will allow vaccine makers to claim refunds for the taxes paid on inputs.
With states having a long list of grievances, Friday’s virtual meeting of the Council could be a lengthy affair, said a third official, who also spoke on condition of anonymity.
An email sent to the Union finance ministry seeking comments for the story remained unanswered till press time.
