GST rate revision likely to be deferred, natural gas may come under ambit

Goods and Services Tax (GST) rates are unlikely to witness any major changes during the extended run of the pandemic as the Centre and the states have agreed not to disturb the country’s indirect tax structure in wake of the current economic situation where growth has contracted and industrial activity is just about reviving after coming to a standstill during the lockdown.

Government sources privy to the development said that there would not be any increase in GST rates or movement towards converging GST to the three rate structure even during the major part of the next financial year and only small steps may be taken by the GST Council to correct the inverted duty till the time the economic health of the country is improved.

   

However, the Council may take up two other important items, including lowering of GST rates for two-wheelers and bringing natural gas into the indirect tax fold at the next meeting, slated for May after declaration of results of the ongoing state elections.

A top source in the Finance Ministry said that inverted duty correction, GST cut on two-wheelers and inclusion of natural gas into GST fold are on the agenda and hopefully the Council will offer some solution that is in the best interest of all stakeholders.

The GST Council, in its meeting in August last year, just focused on the mechanism of compensation to states for revenue forgone due to the switchover to GST. Sources said even at that meeting, it was a unified view that any review of GST rates should not be considered at this juncture. The same view also got strengthened in the parleys between the Centre and the states while deciding the compensation mechanism.

With the Centre now indicating that there would be a GST compensation shortfall even in FY22, this matter would hold prime concern of the GST Council when it meets next sometime next month or later. This would push back any talks on revising the GST rates.

But sources indicated that the Council may, in phases, take steps to correct the inverted duty structure, especially in sectors such as fertilisers, steel utensils, solar modules, tractors, tyres, electrical transformers, pharma, textile, fabric, railway locomotives, among other goods. Inverted duty refers to tax rates on inputs being higher than those levied on finished products. This results in higher input credit claims by goods besides several administrative and compliance issues. I

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