Revenue officers lack consensus, GST Council may defer decision on key items
This story was originally published at 18:01 IST on 20 December 2024
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By Priyasmita Dutta and Sagar Sen
Jaisalmer - In an agenda-packed discussion a day ahead of the GST Council meeting, state and central revenue officers failed to build consensus on any big-ticket item, an official who attended the meeting Friday said. The sense is, the GST Council will likely defer implementation of any of the suggestions presented in the reports by the multiple Group of Ministers. "The Council will likely defer all suggestions," the official told Informist on the condition of anonymity.
Big-ticket items that were discussed Friday included reduction in goods and services tax rates on health and life insurance premiums, rationalisation of GST rates on a plethora of items and the blueprint on the future of the GST compensation cess, which is due to end in March 2026. The Council is holding their 55th meeting on Saturday.
The only item that may still see a resolution at the Council meeting is the lowering of 18% GST on health and life insurance premiums. If the Council approves the report by the Group of Ministers, the 18% GST levied on the premium on life insurance policies and the premium on health insurance products providing coverage of up to INR 500,000 may be exempted. The Council may also decide to lower the GST on the premium for health insurance coverage above INR 500,000 to 12% or 5%.
Bihar Deputy Chief Minister Samrat Choudhary heads the ministerial panel that also includes ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu, and Telangana. This decision on health and life insurance premium GST may see the light of day if the Council members are able to resolve a few technical issues that were discussed at the officers' meeting Friday.
The likely deferring of report by the Group of Ministers on rate rationalisation comes as a major mood dampener as a host of rate rejigs--on almost 150 items--were in the offing, that could likely help the governments to raise an additional INR 220 billion per year. The proposed changes aim to raise taxes on luxury and sin goods, on the one hand, and provide relief on essential items, on the other.
The ministerial panel's recommendations included lowering GST on packaged water above 20 litres to 5% from 18%, lowering GST on bicycles costing less than INR 10,000 to 5% from 12% and cutting GST on exercise notebooks to 5% from 12%. Besides these, the panel also recommended rates on readymade garments may be tweaked to 5% for garments costing up to INR 1,500, 18% for those between INR 1,500-INR 10,000 and 28% for those above INR 10,000.
The six-member Group of Ministers had been asked to recommend trimming the list of items exempt from GST, reassessing tax rates, and correcting inverted duty structures. To net out the negative impact of lowering GST rates, the panel also suggested increasing the GST on wristwatches priced above INR 25,000 to 28% from 18% and on shoes costing over INR 15,000 to 28% GST from the current 18%.
Deferring of the above suggestions comes as a surprise. However, states were already divided on the proposed new GST rate of 35% on sin goods like cigarettes, tobacco and related products, and aerated beverages from the current 28%. As per the panel's report, the four-tier tax slab of 5%, 12%, 18% and 28% will continue and a new rate of 35% may be introduced for a niche category of items that earlier attracted a cess in addition to the GST rate.
The GST compensation cess, which was introduced to compensate states for revenue losses in the initial years of the GST regime, is due to end in March 2026. The cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks was introduced in 2017 to compensate states for the potential revenue losses in the first five years of the new GST regime.
Though the collection of GST compensation cess was to be discontinued in June 2022, it was extended till March 2026 to repay the loans taken by the Centre to compensate for the fall in revenue collections during the COVID-19 pandemic.
As is widely expected, the Group of Ministers on compensation cess, headed by Minister of State for Finance Pankaj Chaudhary, is likely to be given a six-month extension to finalise its report. The group was originally mandated to submit its report by Dec. 31. End
Edited by Vandana Hingorani
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