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Federal indirect tax body, the Goods and Services Tax (GST) Council will hold its 45th meeting in Lucknow, Uttar Pradesh, on Friday. Mint takes a look at the issues that are expected to come up for discussions at the meeting:

How significant is the next  GST  Council  meet?

This will be the first in-person meeting of political leaders at the federal tax body since the coronavirus outbreak. In the last few meetings, political differences between the Centre and some non-Bharatiya Janata Party (BJP) states had become more pronounced in the council over issues such as GST compensation, the Centre’s reliance on various types of cess for revenue collection, the extent of tax relief on covid-related medical supplies and the rules issued by a panel of bureaucrats in the periods between two meetings of the Council. This meeting is seen as an opportunity to mend fences.

What  are  the  key issues this time?

The GST council is expected to deliberate on the demands from state governments for extending GST compensation, which was constitutionally guaranteed for five years, beyond June 2022. Analysis of the GST revenue positions of the central and state governments, judicial pronouncements requiring policy action and possible extension of covid-related tax relief could figure in the meeting. Certain anomalies where tax outgo on raw materials exceeding that on finished products—known as inverted duty structure—are also likely to figure in the meeting.

Bone of contention
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Bone of contention

What’s the compensation issue all about?

The economic downturn and the pandemic have affected state revenues, reducing their ability to spend. GST compensation has been an important component in most state budgets. States are also burdened with the additional requirement of offering economic and welfare packages to vulnerable sections of society, make capital spending and rev up economic growth.

How  will  compensation after 2022 be decided?

The constitutional guarantee for GST compensation up to 2022 is based on a formula  which  calculates the state revenue to be protected by the Centre. The protected revenue goes up 14% a year over the base year of 2015-16. The gap between revenue collected by the state and the protected revenue is given as compensation. But with the realization within the Central government that a 14% annual increase in protected revenue may not be viable in current circum-stances, the formula is likely to be revised  for  the  period  beyond  2022.

Any other unfinished agenda items?

Many. Inclusion of petroleum products in GST is a long-pending issue. Petroleum products being a big source of revenue for both central and state governments, their inclusion will spark long debates. The inclusion of Jet fuel and natural gas could face less opposition. Experts said it is also necessary, in addition to a discussion on extending the tenure of the compensation cess, to focus on correcting the inverted duty structure on certain products. This tax anomaly is particularly evident in textiles, fertilizers, and footwear.

 

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