Ahead of the meeting of the GST Council, Congress-ruled Punjab has demanded a cut in tax rate on life-saving items for COVID-19 treatment as well as implementation of pending reforms, including reviewing tax rates and exemptions, setting up of dispute resolution body and ways to bridge shortfall facing states. In a letter to Finance Minister Nirmala Sitharaman, who heads the GST Council that also comprises representatives of all states and union territories, Punjab Finance Minister Manpreeet Singh Badal sought a discussion on floor and band of rates within which states may be allowed to fix their respective State-GST rates as they continue to face deficit of around 20 per cent of the assured revenue.
In the six-page letter dated May 24, he also raised the issue of bureaucrats being allowed to tweak GST rules in the name of enforcement without the political oversight of the GST Council, which sets a “dangerous” precedent. The GST Council is to meet for the first time in nearly eight months on Friday (May 28). Badal said many goods, including protective garments, digital thermometer, laboratory sanitisers/disinfectants and paper bed sheets, which are needed to fight the pandemic, attract a basic customs duty of 20 per cent and a Goods and Services Tax (GST) of up to 18 per cent. On top of that, a 10 per cent social welfare surcharge is levied on such items. “As IGST is charged on taxable value, that includes import duties, the effective burden exceeds by another 2-3 per cent, Badal said.
“It is baffling that despite the crisis our country currently finds itself in… taxes this high continue to apply on basic essentials needed to overcome this life-threatening disease…,” Badal wrote. He also suggested review and harmonisation of tax rates and exemptions to eliminate evasion and simplify tax credit chain. He also called for making GST predictable by strengthening the Advance Ruling Authority and also issuing guidance note for uniform implementation across the country. To strengthen the federal structure and for effective consultation with the states, Badal also reminded the Union Finance Minister the long-standing demands of the states for appointment of a Vice-Chair to the GST Council and activating a dispute resolution mechanism.
He said a discussion should be initiated on floor and band of rates within which states may be allowed to fix their SGST rates after June 2022. “Practically all states continue to face revenue deficit of close to 20 per cent of the assured revenue. In case of Punjab, it goes in excess of 50 per cent,” he said, adding GST has failed to garner the assured revenue, threatening the fiscal sovereignty of states. “We need to start discussions on how exactly this gap is to be bridged in general together with the possibility of differential SGST rates for states which continue to have far greater deficits,” Badal said. Badal also drew Sitharaman’s attention to the decisions taken by the GST Implementation Committee, a panel of officers tasked with routine and procedural matters.
These include cancellation and suspension of GST registration, restriction on validity of e-way bill, payment of minimum tax in cash even while tax credit is available and waiver of penalty. He said most of these decisions would require an amendment to the rules that would also require them to be placed before the state legislatures. “We are setting dangerous precedents of subverting the process of law making to officers, clearly a case of excessive delegation and running the risk with the judiciary of being struck down,” Badal wrote.
These decisions should be either reversed or be placed before the Council as a separate agenda for formal approval with retrospective effect, he said. “…GST is being increasingly perceived to be causing excessive harassment and arbitrariness (eg. freezing of productive assets of businesses, suspension of registrations and denial of eligible tax credits) and moving away from a fair and non-adversarial tax system that forms the foundation for a progressive tax,” Badal said. The Council should define and notify the powers of the GST Implementation Committee (GIC), he added.