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GST Council to meet after 7 months, tax waivers on healthcare likely

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The Goods and Services Tax (GST) Council will meet for the first time in seven months on May 28, to discuss key issues such as compensation to states and tax waivers on various medicines, medical devices, and health services amid the second wave of Covid-19 pandemic, two officials said.

The office of finance minister Nirmala Sitharaman on Saturday tweeted the date and timing of the meeting after several states, including Punjab and West Bengal raised the issue of inordinate delay in convening its meeting, the officials aware of the development said requesting anonymity.

“Smt @nsitharaman will chair the 43rd GST Council meeting via video conferencing at 11 am in New Delhi on 28th May 2021. The meeting will be attended by MOS Shri @ianuragthakur besides Finance Ministers of States & UTs and senior officers from Union Government & States,” a tweet from the FM’s office said.

The GST Council is required to meet once in every quarter. Its meetings are convened by the Union finance ministry as the council is chaired by the Union finance minister. Finance ministers of states and Union territories (UTs) are members of the council, the apex federal body on indirect tax matters.

The last time the council had met on October 5, 2020 (the 42nd meeting) to resolve the issue of compensating states for their revenue shortfall in 2020-21. That meeting was extended to the next week on October 12 for finalising a centralised borrowing mechanism to meet the revenue shortfall. After that the council did not meet for months.

Earlier this week, West Bengal finance minister Amit Mitra wrote to Sitharaman asking her to convene the GST Council meeting immediately as states were expecting an alarming shortfall in GST compensation revenue because of the Covid-19 pandemic. “As per GoI [Government of India] projection, the shortfall was expected to be to the tune of 1,56,164 crores in 2021-22 without taking into consideration the impact of Covid Wave-2,” Mitra said in the letter to FM. HT reported it on May 14.

Last week, Punjab finance minister Manpreet Singh Badal asked the Union finance minister to urgently convene a meeting of the council for a “serious mid-term correction” on tax issues. In his letter Badal said, “…failure to hold any constructive consultation with states for so long in such critical times makes me wonder whether Centre has usurped all the powers of states putting the spirit of cooperative federalism…” HT reported it on May 6.

Besides full compensation to states, many members want GST waiver on several critical items necessary for people at the time of the pandemic, including vaccines, key medicines and healthcare services. These matters could be discussed in the council, the officials mentioned above said.

Ranjeet Mahtani, partner at consultancy firm Dhruva Advisors said the council needs to resolve other pressing issues such as inverted duty structure on certain products. “This has lingered as an issue for some time now,” he said. According to him, there is a need to rationalise GST rates and reduce number of tax slabs by merging the 12% and 18% slabs into one revenue-neutral rate. He said, compensation is also a key issue for states.

At the time of introducing the new indirect tax regime in July 2017, the GST law assured states a 14% increase in their annual revenue for five years (up to 2022), and assured them that their revenue shortfall would be made good through the compensation cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and tobacco.

The issue of compensating states for their revenue losses due to a 68-day lockdown and because of the first wave of Covid-19 came up in the previous fiscal year when GST revenues plunged and there was a gap of over 1.10 lakh crore in the collection of compensation cess. The matter was resolved after the Centre agreed to raise back-to-back loans on behalf of states and compensated them for their shortfall in revenue. It was decided that the loan would be repaid from the compensation cess revenue collected in future.

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