Industry is looking at discussions during the GST Council meeting on the revival of a plan to restructure the complex multiple-rate tax structure, with GST revenue having already risen significantly. The industry is also expecting a review of the 28 per cent levy on online games, horse racing and casinos.
While the agenda for the upcoming GST Council meeting is not known yet, state finance ministers are expected to flag suggestions for the indirect tax regime that can be incorporated in the Union Budget likely to be presented next month. Industry is looking at discussions during the GST Council meeting on the revival of a plan to restructure the complex multiple-rate tax structure, with GST revenue having already risen significantly. The industry is also expecting a review of the 28 per cent levy on online games, horse racing and casinos.
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Further, the inverted duty structure creates a cash flow burden for businesses and accumulates Input Tax Credit (ITC) that cannot be effectively used because of the complexities and litigations surrounding inverted duty structure (IDS) refunds. Per experts, the GST Council meeting is expected to focus on resolving the inverted duty structure plaguing sectors such as textiles, footwear, and fertilisers.
Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys, said, “The entire industry is counting on the new coalition Government for relief owing to the hardships faced post the introduction of new rule for valuation of corporate guarantee. The industry is hoping for an amendment/clarification to fix the value of supply basis, the actual loan amount disbursed and the non-applicability of the rule where full ITC is available to recipients. As hinted by the finance minister recently, spirited discussions regarding inclusion of petrol, diesel, ATF, natural gas, and selected petroleum products within the ambit of GST have been taking place not just within the corridors of power but also within the industry. How far these requests will be met, however, will depend on the Centre taking on board the states.”
The 53rd GST Council meeting will be held on June 22, 2024 at New Delhi, the official handle of the GST Council had informed in a post on X. At its last meeting held on October 7, 2023, the Council had initiated discussions on a “perspective plan” to impose a cess or surcharge on top of GST levies after March 2026, when the GST Compensation Cess is due to expire. The Council had then decided to meet in the future to discuss a replacement levy for the Cess and how those funds could be used.
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Apart from broader reforms to the indirect tax regime, tax experts also hope for resolution of some long-pending operational issues and challenges at the upcoming meeting.
Saurabh Agarwal, Tax Partner, EY, said, “Businesses are urging the GST Council to prioritize an amnesty scheme to clear tax disputes arising from the Goods and Services Tax (GST) implementation. Delays in such a scheme are causing a backlog of litigation.
This long-awaited amnesty would provide a chance for businesses to settle past tax issues without heavy penalties, reducing the burden of court cases. While legislative changes are needed, the GST Council should address this as a critical agenda item. Once implemented, industry will need to carefully analyze the scheme’s details to ensure it effectively resolves outstanding tax matters. This will pave the way for a cleaner tax environment and smoother business operations.”
Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co, said, “GST compliance may be examined for ease of doing business. Currently, there is no facility to file revised returns but only amendment in invoice detail is permitted. These provisions could be re-looked for the benefit of the taxpayer. The benefits of the GIFT CITY in Gandhinagar expanded to sunshine sectors like Data Centres, Data Embassies, etc, which have an enormous growth potential in India. In the absence of the proposed DESH Bill, this would be a significant push to the archaic SEZ laws presently in force. The government should also push for development of infrastructure / capex and think of rational practical measures to assure the industry of their best intentions, for the eventual strengthening of the economy.”
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According to tax experts, one of the key issues to be watched would be a review of 28 per cent GST on online gaming, casinos and horse racing, as decided last year. The Council had, in its meeting on July 11 last year, recommended that actionable claims supplied in casino, horse racing, and online gaming are leviable to a GST rate of 28 per cent and recommended to carry out amendments in the law to remove any ambiguity.
Smita Singh, Partner, S&A Law Offices, said, “The Council is expected to address and provide clarification on various issues which need clarification/ resolution for quite some time now. One of the most pressing issues which needs immediate clarification is related to online gaming. Previously, online gaming companies were charging GST at 18% on platform fees, but now face a higher tax rate on certain online gaming services. The next issue is a persistent demand for rationalization of rates. There is a huge expectation in the industry of an overhaul of the existing four-tiered GST rate structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent during the current financial year.”
“The GST Council may also look into the issue of fixing inverted duty structure for different industries like textiles and fertilizer,” said Smita Singh. In the pharmaceuticals sector, various input medications attract 18 per cent GST, while the final product is in 5 per cent tax slab. Similarly in the EV sector also, inputs are within the tax rate of 18-28 per cent slab whereas the EVs are taxed at 5 per cent GST, which eventually leads to blocking up of capital for these manufacturers. Meanwhile, automobile companies are also hoping for a reduction in the 28 per cent GST (plus 3 per cent cess on models above 350cc) levied on scooters and motorcycles, as they are not luxury items like cars and are used by lower-income groups and in rural areas.
Further, according to Smita Singh, the GST Council can also consider the issues such as taxability of ESOPs, corporate guarantee taxability and various rate-related clarifications due to increase in the recent litigations on the said issues. The industry will also be expecting new regulations on ISD and its implementation date.
Earlier this month, latest data released by the Ministry of Finance stated that GST collections during the month of May 2024 came in at Rs 1.73 lakh crore, recording a growth of 10 per cent on-year. For the previous month (April), GST collection had breached the Rs 2 lakh crore milestone. The gross GST collection during April had hit a record of Rs 2.10 lakh crore, up 12.4 per cent on-year. The Ministry of Finance had further added that the growth was driven by a strong increase in domestic transactions (up 15.3 per cent) and slowing of imports (down 4.3 per cent). After accounting for refunds, the net GST revenue for May 2024 stood at Rs 1.44 lakh crore, reflecting a growth of 6.9 per cent as compared to the same period last year.
