GST Council To Adjust Rates, Discuss Network Glitches On Saturday

The Goods and Services Tax Council is expected to correct the inverted duty structure—which taxes inputs at a higher rate than output—that has resulted in blocked credits for manufacturers.

The GST rate on mobile phones is proposed to be increased from 12 percent to 18 percent, on a par with most of the inputs used for manufacturing phones, a government official told BloombergQuint on the condition of anonymity. The proposal will be discussed at the council’s meeting on March 14.

Due to the inverted duty structure, input tax credit—or the credit of taxes paid on input—gets stuck as manufacturers pay higher taxes on raw materials, blocking their working capital.

The council would also consider increasing tax on fabric from 5 percent to 12 percent in sync with man-made filament/spun yarn. GST on footwear costing up to Rs 1,000 is proposed to be increased from 5 percent to 12 percent, the official cited earlier said. These proposals have been suggested by the fitment committee that’s tasked with making changes to GST rates.

Since no inverted duty refund is available with respect to GST paid on input services, increasing the tax on phones, textile and footwear should be beneficial for the industry as it will help companies liquidate the input credit pile-up, said Rajat Bose, partner at Shardul Amarchand Mangaldas & Co.

“At the same time, the companies must undertake a review of the costing and pricing of the products post increase in GST rates and consequent increase in ITC (input tax credit) pool to ensure that appropriate benefits are passed on to the consumers, in order to avoid scrutiny from anti-profiteering authority,” he said.

The GST Council is also expected to increase GST rates on non-alcoholic beer, at par with carbonated drinks, to 40 percent from 18 percent. The move is expected to fetch an additional Rs 250 crore to the exchequer.

The Finance Ministry didn’t respond to emailed queries.

States are expected to initiate talks on delays in their compensation. The government plans to increase compensation cess, levied on sin and luxury goods, or extend it further from the promised five years.

GSTN Glitches

The issues faced by taxpayers on the Goods and Services Tax Network portal and steps the back-end support of the indirect tax regime is taking to address them will also be discussed in the meeting. Nandan Nilekani, co-founder and non-executive chairman of Infosys Ltd.—which provides technological support to the GST Network—will make a presentation before the council on why the GSTN system has yet to stabilise.

The GSTN portal, according to another government official, hasn’t stabilised two-and-a-half years after its rollout, and every time the system faces an error, problems aren’t resolved promptly.

An Infosys spokesperson declined to comment.