In its first meeting since the new Union government formed, the GST Council made significant strides on Saturday to reduce the compliance burden and litigation for taxpayers. The Council adjusted tax rates on several items and introduced measures to make tax compliance more manageable.
Key among these steps is the recommendation to waive interest and penalties on demand notices under Section 73 for three financial years, provided the tax is fully paid by March 2025. Additionally, the Council proposed lowering the pre-deposit amounts required to file an appeal and setting monetary limits for the tax department to file appeals. These initiatives are positive, but there remain pressing issues that demand urgent attention.
Rate Rationalisation:
One critical issue is rate rationalisation. In September 2021, the GST Council established a Group of Ministers (GoM) to examine this matter. The committee submitted an interim report in June 2022, and the Council plans to discuss this issue further in its next meeting. Merging two tax slabs is one proposal on the table, but the Council must consider revenue neutrality. A study by the RBI showed that while the Chief Economic Advisor’s report pegged the revenue-neutral rate at 15.3%, the weighted average GST rate had dropped from 14.4% in May 2017 to 11.6% by September 2019.
Including Petroleum Products:
Another complex issue is incorporating petroleum products into the GST framework. Both the Centre and states derive substantial revenue from petroleum taxes, with states exercising control through their own levies. Bringing petroleum products under GST would require careful balancing of these interests.
Compensation Cess:
The compensation cess, initially levied for five years ending June 30, 2022, was extended to March 31, 2026, to repay loans taken by the central government during the pandemic. The Centre borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22. There are expectations that these loans might be repaid by 2025-26, prompting the Council to consider discontinuing the cess thereafter.
Expert Insights:
Aditi Nayar, Chief Economist at ICRA, emphasised, ‘Organising your documents is crucial for a smooth ITR filing experience. With the right preparation, taxpayers can avoid delays and additional scrutiny.’
Madan Sabnavis, Chief Economist at Bank of Baroda, added, ‘Keeping all necessary documents handy ensures compliance and can prevent last-minute hassles during the ITR filing process.’
The GST Council’s recent moves to ease compliance and reduce litigation are commendable. However, it must also address these critical issues in a balanced and comprehensive manner, ensuring the concerns of state governments are addressed to reach a consensus on necessary measures.
