On 31st December 2021, the 46th meeting of the GST Council took place under the leadership of Union Finance Minister Nirmala Sitharaman. Finance ministers and top officials from the different Indian states and UTs met at Vigyan Bhavan, New Delhi.
The main issue for the 46th GST Council meeting was to deliberate on the proposed increased rate of GST for the textile industry which had been suggested by the 45th GST Council meeting.
The Gujarat government had expressed concerns about the likely adverse effect of this increment on the textile industry and called for a revisit of the decision. Having discussed this, the GST Council adjourned to amend tax rates on textiles. This ensured that the rates that existed in the textile sector would persist after January 1, 2022. The council indicated that the next GST Council meeting was scheduled for February 2022 or March 2022.
GST council also dealt with the other issues relating to GST application such as simplification of the GST procedures and resolution of the cases pending for GST tax refund. The council also reviewed the performance of the GST revenue collection and indicated the high performance of the GST regime as a whole.
What do the GST Council Meetings Mean?
GST Council meetings play a crucial role in shaping India’s taxation landscape.
When the Council convenes, it brings together representatives from the central and state governments to discuss and decide on matters related to the Goods and Services Tax (GST).
These meetings serve as a platform to review tax rates, discuss policy changes, and address issues affecting businesses and consumers.
The decisions taken during these gatherings directly impact the taxation structure, influencing everything from product prices to industry competitiveness. Importantly, the Council acts as a collaborative forum, fostering coordination between the center and states to streamline the GST framework.
The outcomes of these meetings ripple through the economy, making them a focal point for businesses and policymakers alike.
Highlights of the 46th GST Council Meeting
The 46th GST Council meeting highlighted the complex considerations surrounding the proposed GST rate revision on textiles and the need for a comprehensive and data-driven approach.
Introduction of New Members
The meeting began with the introduction and welcome of new members, including Shri. Kanubhai Desai from the State of Gujarat and Shri Vivek Johri, the newly appointed Chairman of the Central Board of Indirect Taxes and Customs (CBIC).
Acknowledgment of Contributions
The Council acknowledged the contributions of Shri. Nitinbhai Patel, the former Member from the State of Gujarat, welcomed the new member from Gujarat, Shri. Kanubhai Desai.
The meeting was called under the emergency clause due to a letter from the Minister of Gujarat requesting the deferral of the proposed GST rate revision on textiles from 5% to 12% effective from January 1, 2022.
Background on the Textile Sector
The Secretary provided background information on the textile sector, emphasizing the historical context of tax incidence, inverted rate correction, and the impact on various segments within the industry.
Recommendations for Rate Revision
The Ministry of Textiles recommended correcting the inverted rate structure to boost the textile industry’s competitiveness and create employment opportunities. The Fitment Committee discussed various solutions, proposing a uniform GST rate of 12% on fabrics and garments.
Concerns and Opposition
Members from different states expressed concerns about the proposed rate revision. They cited potential adverse effects on MSMEs, employment, and the overall economy, especially in the context of the ongoing COVID-19 pandemic.
Request for Deferment
Tamil Nadu, West Bengal, Goa, Puducherry, Andhra Pradesh, Gujarat, and others have requested to postpone the decision to increase GST on textiles. This should entail a comprehensive analysis of the industry and should be followed by a reconsideration of the decision.
Some members raised additional issues, such as the need to revisit the decision on GST rate revision for footwear and works contracts. The extension of GST compensation to the states beyond June 2022 was also discussed.
Long-Term Policy Proposal
A member from Rajasthan proposed a long-term policy decision to refrain from changing GST rates for two to three years to provide stability to the states.
Call for Further Study
Members emphasized the importance of detailed studies on the textile industry’s various aspects, including the share of different materials, the impact on employment, and the potential effects on the economy.
Concerns About GST Compensation
Some members expressed concerns about the cessation of GST compensation to states after June 2022, requesting its extension for another five years.
Request for Data Sharing
Members requested the sharing of studies or the commissioning of new studies to better understand the implications of the proposed GST rate revision on textiles.
Representation by Gujarat and Distinction Between Power Loom and Handloom Textiles
- The Hon’ble Member from Tripura supported Gujarat’s representation and emphasized the need for more consultation with stakeholders.
- Agreement with Odisha on the distinction between power loom and handloom textiles when deciding tax rates.
Rationalization of Tax in the Textile Sector
- The Hon’ble Member from Delhi appreciated the short-notice convening of the Council meeting to discuss urgent issues.
- Advocacy for a detailed presentation by the Ministry of Textiles on the cons of increasing GST on textiles from 5% to 12%.
- Emphasis on the impact of tax rate increase on the textile sector in terms of jobs, investment, and economic conditions.
- Proposal to defer or roll back the decision, with a call for a comprehensive study on the complexities in the textile sector beyond taxation.
Exploration of Alternatives and Formation of a Committee
- The Hon’ble Member from Rajasthan suggested exploring alternatives such as new tax slabs.
- Proposal to form a Committee to study the GST taxation system from a long-term perspective, dividing the economy into sectors.
Need for Data Circulation and Informed Decision-Making
The Secretary highlighted the relevance of the points raised by Delhi and Rajasthan, proposing the circulation of facts and data to aid informed decision-making.
Perspective on Rate Revision
- Discussion on the need to look at rate revision holistically, considering factors like employment.
- Reference to the previous presentation in the 39th GSTC meeting focused on the taxation perspective in the textile sector.
Inversion Issue and Refund of ITC
- Deliberations on the issue of inversion in multiple Council meetings, with a suggestion to differentiate between power loom and handloom and man-made and natural fiber.
- Consideration of going back to the pre-2018 situation regarding the refund of Input Tax Credit (ITC).
Consensus on Deferring Tax Revision on Textiles
- Consensus among members and officers to defer the decision to increase the GST rate on textiles from 5% to 12%.
- Views from various states on the need for a comprehensive review, protection of state revenues, and considerations beyond taxation.
Formation of GoM on Rate Rationalization
- Creation of a Group of Ministers (GoM) on Rate Rationalization under the convenership of the Hon’ble Chief Minister of Karnataka.
- Assurance that the GoM would discuss the textile issue and submit a report on rate rationalization by late February or early March 2022.
Updates on the Implementation of the 50th GST Council Meeting Decisions
Here are some updates on the implementation of the 46th GST Council Meeting decisions:
Deferment of GST rate hike for textiles
The decision to defer the GST rate hike for textiles from 5% to 12% was upheld. This means that the existing rates in the textile sector will continue. The council also formed a Group of Ministers (GoM) to study the GST rate structure for textiles and submit a report by February 2022.
Simplification of GST procedures
The GST Council has taken several steps to simplify GST procedures, including:
- Implementing a simplified return filing process for small taxpayers
- Extending the due date for filing returns for certain taxpayers
- Reducing the number of GST forms
- Waiving late fees for certain compliance failures
Resolution of pending tax disputes:
The GST Council has set up several mechanisms to resolve pending tax disputes, including:
- A GST appellate tribunal
- A settlement commission
- A mechanism for out-of-court settlements
- GST revenue collection: GST revenue collection has been consistently increasing since the implementation of the GST regime. In FY2022-23, the gross GST collection reached a record high of ₹14.96 lakh crore.
The implementation of the 46th GST Council Meeting decisions has been positive. A delay in the GST rate hike for textiles has given respite to the textile industry. Simplification of GST procedure has enhanced simplicity in compliance with the GST regime by taxpayers. The resolution of pending tax disputes has also improved the overall tax administration.
|Deferment of GST rate hike for textiles
|Formation of GoM to study GST rate structure for textiles
|Implementation of a simplified return filing process for small taxpayers
|Extension of due date for filing returns for certain taxpayers
|Reduction in the number of GST forms
|Waiver of late fees for certain compliance failures
|Establishment of GST appellate tribunal
|Establishment of settlement commission
|Mechanism for out-of-court settlements
|GST compensation for states
|Decision on GST rate for footwear
|Decision on GST rate for online gaming
Additional Updates on GST Rates
GST compensation for states
As compensation, the GST Council will give states the revenue loss they have suffered because of GST. It operates on a 14% revenue growth assumption.
GST rate on footwear
The GST council has not agreed, however, on the GST rate for footwear. This rate is 5% now, and there are appeals for it to be increased to 12%.
GST rate on online gaming
The GST Council has yet to decide on the GST rate for online gaming. Currently at 18%, it has been proposed to be reduced.
Also Read: List of Special Category States Under GST
How can Businesses and Taxpayers be affected by the Changes?
The outcomes of the 46th GST Council meeting, particularly the decision to defer the proposed GST rate hike on textiles and the formation of a Group of Ministers (GoM) to review the matter, will likely have several impacts on businesses and taxpayers. Here are some potential effects:
Relief for Textile Businesses
Textile businesses can breathe a sigh of relief as the anticipated GST rate hike from 5% to 12% has been deferred. This decision provides them with more time to adjust to any potential changes in their pricing structures and operations.
The decision to defer the rate hike introduces an element of uncertainty for businesses in the textile sector. They may continue to face challenges in long-term planning and decision-making until a final decision is made by the GST Council after the GoM submits its report.
Opportunity for Advocacy and Representation
The deferment of the GST rate hike offers an opportunity for textile businesses and industry associations to engage in advocacy and representation. They can present their case to the GoM, providing insights into the potential impact of a rate hike on their operations and competitiveness.
Possible Changes in Supply Chain Strategies
Businesses in the textile sector may reconsider their supply chain strategies in light of the potential rate hike. The deferment allows them more time to assess the impact on procurement, production, and distribution channels, and to make informed decisions.
Market Dynamics and Consumer Behavior
The uncertainty surrounding the GST rate on textiles can influence market dynamics and consumer behavior. Consumers may adopt a wait-and-see approach, affecting purchasing patterns, while businesses may adjust marketing strategies based on the final decision of the GST Council.
Government Revenue Considerations
The GST Council’s decision reflects a balancing act between supporting businesses and ensuring government revenue. The final decision on the GST rate will likely take into account the economic impact on the sector while addressing the revenue needs of the government.
Preparation for Future Changes
Businesses, especially those in the textile sector, should use this period of deferment to prepare for potential future changes in the GST rate. This may involve conducting impact assessments, updating financial models, and staying informed about developments in the GST framework.
For more information on the 46th GST Council Meeting, please visit the official website of the Central Board of Indirect Taxes and Customs (CBIC) at https://cbic-gst.gov.in/ or https://gstcouncil.gov.in/gst-council-meetings