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Expectations from the industry as well as common taxpayers are at their peak regarding the upcoming meeting of the Goods and Services Tax (GST) Council, which decides the direction of the country’s economy and taxation system. In this high-level meeting to be held under the chairmanship of Union Finance Minister Nirmala Sitharaman and in the presence of finance ministers of the states, there is a strong possibility of discussing many such important proposals, which can directly give impetus to the ease of doing business. For some time now, while on one hand the historic steps of tax exemption on personal health and life insurance have been appreciated, on the other hand the industry and services sector have raised a strong demand for making the rules of Input Tax Credit (ITC) flexible, making the processes paper-free and correcting tax anomalies on many key goods. In such a situation, the possible relief proposals to be included in the council’s agenda will not only prove helpful in reducing the costs of corporate companies, but can also provide new energy to demand and consumption in the market.
The biggest positive decision in the upcoming meeting may be related to easing of input tax credit blocked under section 17(5). At present, when companies purchase compulsory group health insurance or term life insurance policies for their employees, input credit of the tax paid on it is not easily available, which increases the operating costs of the companies. As per the recommendations of the Law Committee, consideration is being given to allowing ITC for GST paid on employee welfare, compulsory health insurance, outdoor catering and workplace amenities. If the Council gives its approval to this proposal, companies in the IT, manufacturing, banking and service sectors across the country will get financial relief worth crores of rupees annually. This will not only motivate companies to provide better health protection to their employees, but will also improve the global competitiveness of Indian industries.
The automobile and commercial vehicle sector is also expecting big relief from the GST Council this time. There was a long standing need for clarity regarding input tax credit on vehicles taken on lease by companies for business activities, field work and transportation of employees. The Council is seriously deliberating on whether ITC facility should be provided on leasing and maintenance of vehicles used in business operations. If the way for tax relief on leased vehicles is cleared, it will be a direct boost to the country’s fast-growing fleet management, logistics companies and car-rental startups. Due to reduction in transportation cost, freight transportation will become cheaper, the ultimate benefit of which will directly reach the retail market and the pockets of common consumers.
A much-awaited relief proposal is also on the council’s table for Fast Moving Consumer Goods (FMCG) and pharmaceutical companies. Under current rules, when a medicine, food product or cosmetic exceeds its expiry date or has to be written-off as per legal norms due to expiry of shelf-life, the companies have to reverse the input tax credit earlier availed on it. Due to this, the traders have to suffer double loss – first, the goods are not sold and second, the government has to pay additional amount in the form of reversal. Industry organizations have demanded that ITC should not be blocked on goods subject to expiry and destruction under legal compliance. If the Council relaxes this rule, then there will be a big improvement in the working capital of pharmaceutical companies and packaged food manufacturers in particular.
Instead of any major change in tax rates, this time the main focus of the Council is expected to be on ‘Process Reforms’. A transparent framework is being prepared to help the country’s Micro, Small and Medium Enterprises (MSMEs) face the problems of technical glitches during GST filing, automatic notices sent due to return mismatch and stuck refunds. The automated risk-based system can be expanded to rapidly issue digital refunds to small exporters and manufacturers trapped in inverted duty structures (higher tax on raw materials and lower tax on finished goods). Apart from this, Standard Operating Procedure (SOP) can also be finalized for faster functioning of GST Appellate Tribunal (GSTAT) in different states and speedy disposal of cases, so that small traders will not have to make long rounds of courts.
From the perspective of students and the education world, there has been a demand for a long time to correct the ‘tax mismatch’ arising due to different tax rates on notebooks, printing paper and educational materials. The printing cost of copies and books increases due to the difference in rates on production of paper and final sale of notebooks. If the Council resolves this classification dispute and sets a uniform lower rate, the prices of notebooks, stationery and study materials for school-college students may fall. Along with this, there is also a possibility of discussion on making the rules more practical for local artisans associated with handicrafts and traditional cottage industries to sell products on e-commerce platforms without complicated GST registration.
On one hand, the GST Council is faced with the challenge of providing relief to industries and common citizens, on the other hand, it also has the big responsibility of maintaining stable revenue collection of the states and the Centre. Monthly GST collections in the country have been consistently crossing a strong level of Rs 1.7 lakh crore to Rs 1.8 lakh crore, indicating that the fundamentals of the economy are extremely solid. Experts believe that on the basis of this strength of revenue, the government is now in a position to rationalize the tax burden and create a business-friendly environment by freeing itself from the allegations of ‘tax terrorism’. If the Council takes strategic steps like procedural simplification and ITC unblocking, it will give impetus to private investment, create new employment opportunities and give a new boost to the growth rate of the Indian economy.