The 45th GST council meet held in Lucknow on Friday, 17th Sept 2021, announced some important changes that could directly or indirectly impact the economy and pandemic.
This meeting was the first in-person meeting after the pandemic, as earlier major meetings were held virtually considering the severity of the first and second waves.
In this meeting, some rates were cut whereas some rates were increased also.
What has happened?
The 45th GST council meet decided that the rates for many cancer and covid medicines will be done. The key highlight of this meeting was that there will be a shift in tax liability payment from restaurants to the food delivery apps like Swiggy, Zomato, etc.
Key highlights of this meeting
- For covid related medicines like Remdesiver, the concessional rates which were valid till Sept 30, now have been extended till Dec 31st.
- But the concessional tax for medical equipment will end on Sept 30.
- There is a reduction of GST rate to 5% on some covid medicines or treatment drugs up to Dec 31at like 2-deoxy-D-glucose, itocilizumab, etc.
- There will be no GST on the imports of muscular atrophy drugs like zolgensma and virtepso as earlier it costed crores of rupees to the govt.
- On cancer treatment medicines, the GST rates were reduced from 12% to 5%.
- Also the govt cut GST rates on fortified rice kernels to 5% from 18%.
- On ores and concentrates of metals like iron, copper, zinc, etc., the GST was increased from 5% to 18%.
- GST on specified renewable energy devices and parts GST increased from 3% to 12%.
- Cartons, boxes, bags, and packaging containers of paper will now have a flat rate of 18% as GST.
- The GST on plastic and waste was increased to 18%.
- GST rates on carbonated drinks, fruit juices will be 28% plus a compensation cess of 12% will also be charged.
Tax liability payment shift on food deliveries apps
From the 1st of Jan 2022, food delivery apps will have to collect and deposit 5% of GST and will give directly to the govt instead of giving it to restaurants as govt believed that earlier restaurants have not paid their part of the tax even though they had a good turnover.
So apps like Swiggy, Zomato, etc. now will collect the tax on behalf of the restaurants and also deposit it directly to the govt. as per the directions.
Because of this now it becomes mandatory for the restaurants also to get themselves registered like a govt registered e-commerce seller.
Now let us just understand how the shift in the tax liability payments from restaurants to apps will have an effect.
Now how is this decision going to have an impact?
Many experts say this decision is going to have a larger impact on smaller restaurants whose annual turnover is less than Rs. 20 lakh as earlier, they were not included in the GST slab but now they have come automatically under the GST slab rates.
Secondly, now restaurants have to maintain two separate books of accounts one for the normal business transactions and another one for the transactional business through food delivery apps. Maintaining two books of accounts will add further burden and is a complex process that requires more time, expertise, and patience. In this way, restaurants will do more work on accounting-related works rather than focusing on the business.
Thirdly, it will majorly impact the food delivery apps as now there will more accountability and responsibilities on their part whenever it comes to collecting and depositing the tax to the govt; they will be held directly accountable in case if there is an uneven pattern of paying tax liabilities or failure in submitting tax liability payments directly to the govt.
Now let us understand what a compensation cess is as Finance Minister Nirmala Sithararman in the GST council had talked about it. Let us try and understand what compensation cess is?
The 45th GST council meeting also decided to put an end date of June 2022 to the compensation mechanism which was mandated for 5 years.
Now, what is this compensation mechanism?
Earlier, when GST was introduced in India on July 1st, 2017, the states were not at all happy with the introduction of GST especially the industrialized states like Maharashtra or even Uttar Pradesh as many of them feared that there will be losses or reductions in state trade revenue.
So to reduce this fear the govt said that in case if there is any reduction in revenue or loses or gap in the current and previous revenue figures of the state due to GST, the govt will provide all the financial assistance and would pay compensation to the states for losses incurred but on a condition that this compensation by the states has to be claimed from the govt. within 5 years.
Many states like West Bengal have requested to extend this compensation cess further. Although the cess will continue to be levied on the states no compensation will be given to them.
Already according to the govt. during a pandemic, many loans were given to the states in the form of compensation.
Other decisions by the GST council
The 45th GST council decided to form a group of experienced ministers to consider and discuss the problem of inverted duties structure.
Form provisions and policies and come up with the solutions that will cater to the problem of inverted duties structure.
Now, what is this inverted duties structure?
Let just try to understand with the help of an example. Suppose there is a company called ABC LTD. which makes mobiles phones. They used to import the parts of mobile from some other country and companies have to pay the high amount on GST on imported raw materials whereas when they are ready the GST on mobile phones is less that is company when makes mobile the GST rates are less but at the time of manufacturing process the GST rates on the imported parts are high. This is what is called an inverted duties structure.
However, the companies registered with the govt. under GST portal are liable for the input tax credit but the problem of refund tales time and documentations at the same time is very complex and wastes the time of the company on the non-productive works.
There have been many complications in the provisions of GST and its working mechanism. There is a strong felt need from the govt’s side to make the working framework and mechanism of GST more simple and transparent which will boost up the confidence of the general firm and public regarding the implementation of the GST and its provisions.