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NEW DELHI : The shortfall in goods and services tax (GST) cess collection, used for compensating states for their revenue losses, and the proposed compliance relief to businesses for late filing of tax returns, will dominate the GST Council’s meeting on Friday, said two people familiar with the matter, requesting anonymity.
Members of the GST Council will discuss the issues over videoconferencing and are also likely to examine suggestions from the industry for tax cuts on certain products such as hand sanitisers. However, major changes in the tax rates are unlikely, as there is no fiscal room for the government to offer a stimulus through a GST rate cut.
Policymakers are also not likely to consider a tax rate increase as it could come in the way of economic recovery.Members will, however, explore the possibility of authorising the GST Council to borrow from the market to meet any shortfall in cess collections and what the liability of the central and state governments could be to service such a debt, said one of the persons mentioned above.
The idea is to extend the GST cess on certain products, such as tobacco and cars, if needed, beyond 2022, to repay the debt. This is being examined as the Centre is not in a position to make up for revenue losses of states from its share of revenue.
Expectations of compliance relief for businesses are also building up. Several taxpayers may have difficulty in paying the late fees because of the severe fund crunch, said Archit Gupta, founder and chief executive officer, Cleartax. The council may consider a late fee waiver for the period August 2017 to January 2020, he said. “Compliance is likely to get a boost if late fees are waived. We hoping the council will consider this as a one-time relief to taxpayers,” Gupta said.
The nationwide lockdown put in place to contain the spread of coronavirus has impacted businesses for more than two months and has also hit the exchequer hard, with states facing a severe fund crunch. The central government, subsequently, raised the borrowing limit of states from 3% of gross state domestic product to 5%, but with riders.
The Centre last week released ₹36,400 crore as GST compensation to states for the December 2019 to February 2020. As such, the meeting is not likely to witness a face-off between Union finance minister Nirmala Sitharaman and the finance ministers of the various states.
“While the focus of the meeting is expected to be on the steep decline in the overall GST collection because of the lockdown, a discussion on the ways of overcoming the deficit in the compensation cess pool could also take place,” said M.S. Mani, tax partner, Deloitte India.
The main expectations from the GST Council meeting include addressing industry-specific concerns, including GST credit on donations, GST waiver of bad debts and non-reversal of GST credit on loss of material, said Abhishek Jain, tax partner, EY.
The central government and several state governments have raised taxes on petroleum products, which do not fall under the GST regime, in recent weeks, because of the revenue shortfall. Several states have also raised taxes on liquor.