GST Council to discuss extending cess levy till 2024

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The 42nd GST Council meeting is all set to discuss a whole host of issues proposing compliance relaxations, finding a solution to the on-going compensation cess issue of states and whether can the rate be reduced for ayurvedic hand sanitizers, sources told CNBC-TV18.

The GST Council, which is set to meet on 5th October, will take a detailed view on the two options of borrowings given by centre, to states, to make good for lack of funds in the compensation cess kitty.

“The Council is likely to revisit two options given by centre to meet compensation shortfall. As part of the revenue collections discussions, Centre will present a detailed calculation of GST Compensation cess collected and released so far,” sources in the know elaborated.

In the 41st GST Council meeting held on August 27, the Centre had proposed two borrowing options for states to meet the GST shortfall. The first option proposed borrowing of Rs 97,000 crore by states with 0.5 percent FRBM relaxation, while the second option proposed borrowing of Rs 2.35 lakh crore to meet the full compensation in cess fund the deficit.

According to the agenda circulated by the Centre, only Rs 15000 crore is a balance of cess collected and not released so far, sources said.

“As per the calculation of the Centre, Rs 281373 crore of Compensation cess has been collected since July 2017 till August 2020. Out of this, Rs 2,96,465 crore has been disbursed to the states and only Rs 15,092 crore is pending due to be released to the states as compensation,” sources said.

Meanwhile, the council will also present the current revenue position of states, according to which the average revenue gap between April-Aug of states has increased to 56 percent in 2020 versus 21 percent in 2019. This calculation is important noting the recent observation by apex auditor regarding centre short-crediting the cess fund due to the states.

The Comptroller and Auditor General (CAG) has slammed the Narendra Modi government for short crediting Rs 47,272 crore of compensation due to states. The CAG in its recent report said short-crediting was a violation of the GST Compensation Cess Act, 2017 and it has recommended that the union finance ministry take immediate corrective action.

To make good for funds falling short in the compensation cess kitty, sources said that the Centre will discuss the proposal of extending the cess period beyond 2022 till 2024.

“The Centre is likely to propose a draft amendment to the GST Compensation Cess Act, 2017,” sources explained.

Under the existing GST compensation Act, 2017, for the shortfall in GST collection over an agreed formula is payable by the Centre for the first five years of the operations of the new tax system from July 2017 to June 2022. This is paid through collection made on account of cess levy on sin and luxury goods.

“For this, the Council likely to constitute a committee of officers to work out anticipated shortfall and other issues,” sources said quoting the council agenda.

Apart from this, the council will also deliberate on the proposal moved by Haryana Ayurvedic Drugs Manufacturers Association to Union Finance Ministry to consider reducing GST Rate on Ayurvedic ingredients based hand sanitizers considering they are a necessity during the on-going pandemic. The GST Council nominated fitment committee however has not given any specific recommendation on this proposal.

“The Fitment Committee has proposed no distinction shd be made in ayurvedic and alcohol-based hand sanitizer. Fitment committee examined in detail proposal to reduce rates for Ayurveda/Unani/Siddha ingredients based hand sanitizer from 18 to 12 percent. Fitment Committee has left it for the Council to consider whether to re-classify ayurvedic hand sanitizer under ayurvedic products category and not in a disinfectant category,” sources said.

Ayurvedic products attract 12 percent GST whereas disinfectants attract 18 percent GST.

The 42nd GST Council is also proposing several compliance improvements, noting the current challenges faced by taxpayers and the preparedness of GSTN.

“The GST Council is likely to allow UPI & IMPS Option to make payment. Currently, payments can be made by only GST authorised banks. Similarly, the council is proposing to extend GSTR1 and GSTR3B systems till March 2021. The Council to change due date of filing of GSTR1 by quarterly taxpayers till 13th of the month next to the quarter among others,” sources added.

“The Council to consider limiting the period for taking cognizance of prosecution under the GST Act. The Council likely to limit the period in case of fine to a max of six-month imprisonment, in case of imprisonment between 1-3 yrs to 3 yrs,” sources added.

The compliance easings are considered to be a boon for the industry.

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