On 20th August 2020, the GST Council has scheduled two GST Council meetings back to back starting on August 27 and September 19th as 41st and 42nd meetings for 2020 respectively. With a steady decline in the GST collection, the Central Government has expressed its inability to compensate States this time. This agenda is to be discussed for the 41st GST Council meet on Aug 27, 2020. The important agendas to be discussed were also announced earlier by Finance Minister Mrs Nirmala Sitharaman.

Likewise, the 42nd meeting has announced to be held on Sept 19, 2020, which may discuss other important matters like –

1. Raising tax rates in sin goods like tobacco and pan masala;

2. Effective administration of tax evasion cases

3. Creation of GST Tribunals;

4.  Other matters;

What will be the 41st GST Council Meeting Agenda?

When the new indirect tax regime was introduced in July 2017, the GST law assured a 14 percent increase in annual revenues for five years up to 2022 with the revenue shortfall made good through compensation cess levied on luxury goods like automobiles and sin goods like liquor, cigarettes and other tobacco products.

Compensation cess collected in 2017-18 and 18-19 was higher than GST compensation paid in those years. While in 19-20, states were paid Rs.165302 crores compensation even though the total cess collection was at Rs.96,444 crores and this gap is expected to widen this year. However, when things have gone downfall this year, the Union Government is struggling to meet the revenue expectations of States at a time when there have been almost nil collections since April this year.

The 41st meeting will discuss a single matter i.e. compensation to the states for revenue losses under the indirect tax regime. As the global pandemic has plunged and further weakened the economic activities, it has also resulted in a major decline in revenue collections for 2020-21 has made it difficult to meet this shortfall.

Accordingly, 41st meeting GST council to be headed by Mrs Nirmala Sitharaman shall make efforts to find a resolution across the differences between Centre and states over the responsibility of the cess liability. To assess further remedies to meet the revenue shortages, there is a possibility to evaluate approaches such as like market borrowing to fund compensation deficit, adding more items under-compensation cess, and /or rationalising tax rate.

Though there is a big question about the obligation of revenue contributions to be necessarily made at the time when the Central Government itself has no collection itself. According to the statement made by  Attorney general of India “The Centre is not obligated to pay for the revenue shortfall and the Centre can allow states to “borrow on the strength of future receipts from the compensation fund” with the central Government taking the “final decision in the matter”.

On the other hand, states maintain that the compensation corpus will not have enough funds to cover the borrowing and that it is the Centre’s responsibility to pay compensation on time. States thus are more in favour of expanding the amount of compensation cess and raising tax rates to build revenues. Though, market borrowing could be one of the solutions, but who will take guarantee is another big question that needs to be resolved.

What will be the Agenda of the 42nd GST Council meet?

Further, it was announced that the GST Council will meet for the second time on Sept 19th, 2020 for discussing the following-

a.  The GST Council may possibly agree for raising tax rates in sin goods like pan masala which presently attracts 100 percent cess with an upper ceiling at 130 percent to bolster GST collection.

b. Aerated drinks incur cess @12% with an upper ceiling limit at 15% and the rate of cess on tobacco products to be limited at rupees 4,170 per 1000 sticks or 290 per cent ad valorem.

c. Further, there is a strong possibility for the Union Government to discuss is how the states and Centre can mutually adopt serious measures for better and efficient revenue realisation. For instance, the Delhi Government had sent notices to 5584 companies under GSTR Act 3A for not filing tax returns and Value Added Tax notices to 36 companies for not filing tax returns. It was found during the review process that the nine sectors namely- auto, electronics, e-commerce, insurance, pharma, financial services, consulting, security and healthcare had not been affected by the pandemic registered under GST and had either paid lesser or no tax to the Delhi Government.

d. Finally, one more discussion could possibly be about the establishment of GST Tribunals in the country which the industry is demanding for a long time for speedy and efficient of GST matters and in whose absence cases are piling up in courts.

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