GST Council: Five Top Highlights - Compensation Cess, Petroleum Goods, Swiggy, Zomato Impact
The goods and service tax cess will continue to be levied on several luxury and sin goods till at least March 2026, Finance Minister Nirmala Sitharaman indicated today.
Addressing a media conference after the 45th meeting of the GST Council, Sitharaman also mentioned the constitution of two groups of ministers to look at larger GST issues, changes in rates to correct inverted duty structures, commented on the issue of GST on petroleum goods and also spoke of the lowering of the revenue neutral rate. She also detailed a change in tax procedure that casts a new burden on e-commerce operators and aggregators such as Zomato and Swiggy.
The GST Council met on Friday in Lucknow—its first face-to-face meeting since the Covid-19 pandemic struck in March 2020.
Here are the key takeaways from the finance minister's briefing.
GST Cess To Continue Till March 2026
The finance minister's comments indicated that GST Cess will have to be levied till at least March 2026 to make up for the shortfall in assured revenue to states in fiscal years 2020-21 and 2021-22.
When the goods and services tax was introduced in July 2017, states were assured by the central government of an increase in tax revenue at 14% per annum for five years. This assurance was to win states' support for giving up their taxing rights and moving to a national value added tax. This five-year assurance was included in the constitutional amendment that enabled GST, whereas the 14% rate provided for in the GST Compensation Act.
To fund this assured revenue to states, the federal government decided to levy a GST cess on select luxury and sin goods, ranging from automobiles to cigarettes, till 2022—the end of the five-year period.
Last year on account of the pandemic the central government said cess revenue would fall short of the amount needed to pay states and proposed that states borrow to cover a part of the shortfall. The amount borrowed as well as the rest of the shortfall was to be recouped via an extension of the cess levy beyond the five-year period originally ending July 2022.
The same arrangement was extended to 2021-22 due to the prolonged impact of the pandemic.
"Cess from 2022 July to 2026 March will be utilised to pay that...the remaining amount payable to the states and to repay the loan and to pay the interest on the loans. That itself will go up to March 2026," said Tarun Bajaj, union revenue secretary, at the briefing.
No GST On Petroleum Goods....Yet
The GST Council discussed the issue of bringing petroleum goods under the levy of the tax but decided against it at this point, the finance minister said.
Sitharaman clarified the council took up the matter on the directions of the Kerala High Court. When hearing a public interest litigation on the inclusion of petroleum goods under GST the court had referred the matter to the GST Council for consideration.
States said they do not want petroleum products to be included under GST now, the finance minister said at the briefing. This will be reported to the court, she said.
In terms of the recent directions of the Hon’ble High Court of Kerala, the issue of whether specified petroleum products should be brought within the ambit of GST was placed for consideration before the Council. After due deliberation, the Council was of the view that it's not appropriate to do so at this stage.Finance Ministry Statement
Two Groups of Ministers
The GST Council has constituted two GoMs to look at larger aspects of the tax.
One group will examine the issue of correction of inverted duty structure for major sectors; rationalise the rates and review exemptions from the point of view of revenue augmentation, a ministry statement said.
The second group will discuss use of technology to improve compliance including e-way bill systems, e-invoices, FASTag data. It will also consider strengthening the institutional mechanism for sharing of intelligence and coordinated enforcement actions by the central and state governments.
Both GoMs are to submit reports within two months.
Lower Revenue Neutral Rate
Interestingly, the finance minister noted at the media briefing that the revenue neutral rate of GST has dropped from the earlier estimated 15.5% to 11.6%.
The 15.5% revenue neutral rate was arrived at in 2015 by a committee led by then chief economic adviser Arvind Subramanian. RNR is that "single rate, which preserves revenue at desired (current) levels," the committee report explained. It's different from the standard rate - a rate in a GST regime which is applied to all goods and services whose taxation is not explicitly specified.
The finance minister didn't clearly elaborate how this is being interpreted by her ministry or the GST Council.
Rate Changes + News For Swiggy, Zomato Etc...
The minister announced a laundry list of changes in rates, including clarifications and corrections to mitigate inverted duty structure issues.
Some key changes include:
Lower rates on several Covid-related drugs have been extended to Dec. 31.
GST on biodiesel supplied to oil marketers for blending with diesel cut from 12% to 5%.
Brick kilns to brought under special composition scheme.
Rate changes to correct inverted duty structure in footwear and textiles sectors to be implemented with effect from Jan. 1 2022.
Most importantly, the GST Council has decided that, effective Jan. 1, 2022, e-commerce operators will be made liable to pay tax on services provided by them. That includes:
Transport of passengers, by any type of motor vehicles.
Restaurant services provided through it with some exceptions.
This indicates that a food service aggregator will have to collect GST from the customer and pay it directly to the government instead of the current practice where the full bill amount is paid by the aggregator to the food supplier who in turn is responsible for paying the tax.
This will put an additional burden of tax collection on e-commerce operators and aggregators.
These are key recommendations made by the Council and will be brought into force by relevant circulars and notices.