Council to discuss a multi-year plan to reform GST structure, ways to boost compliance.

The Goods and Services Tax (GST) Council will likely meet in the second half of June, amid a new debate on the way taxation powers are shared between the Centre and states.

The Supreme Court recently ruled that the council’s recommendations are not binding on the Union government and states, but have a persuasive value as the country has a cooperative federal structure.

The council will deliberate on how some states’ revenue concerns will be addressed after the cessation of a five-year revenue compensation period on June 30. According to sources, the proposal for a comprehensive rate rationalisation may not be taken up in the council’s next meeting, given that it has the potential to raise prices of several products at a time inflation is high and sticky.

Even state governments are not amenable to the idea of rate hikes at this juncture, given the generalised price pressures in the economy. Moreover, a report by a group of ministers, led by Karnataka chief minister Basavaraj Bommai, for this purpose is yet to be submitted.

Under the GST compensation mechanism, which is Constitutionally guaranteed, state governments are assured 14% annual revenue growth for the first five years after the tax’s July 2017 launch.

While a much-awaited restructuring of the GST slabs to raise the revenue-neutral rate (RNR), from a little over 11% now to 15.5% could start in a small way this year in areas not prone to inflation, the GST Council will likely consider enforcing a ministerial panel’s recommendations on data analytics to tighten compliance and scrutiny of GST returns to augment revenues by plugging leakages.

“There is a huge potential in augmenting revenues through scrutiny of returns,” a senior official said.

The Central Board of Indirect Taxes and Customs (CBIC) is currently scrutinising about 35,000 GSTINs (assigned to business entities) for 2017-18 (first year of GST rollout) to see consistency within the returns filed by businesses with regard to input supplies, output supplies, input tax credits and tax payments. “The next batch of GSTINS will be selected through data analytics in two months for 2018-19 for scrutiny,” the official said.

Wherever CBIC finds a gap in compliance, it will take it up with taxpayers. Income tax payments by these businesses will also be tallied at the back-end.

In an indication of increase in compliance, in April 2022, 10.6 million GST returns in GSTR-3B (a self-declared summary GST return filed every month)were filed, against 9.2 million returns filed during April 2021.

The filing percentage for GSTR-1 (a monthly or quarterly return that should be filed by every registered GST taxpayer) in April 2022 was 83.11% as compared to 73.9% in April 2021.

Meanwhile, another GoM led by Meghalaya chief minister Conrad Sangma has recommended raising the GST on online gaming from 18% to 28% to bring the skill game tax rate at par with chance games involving gambling and betting, sources said. The council will consider the proposal in its next meeting.

The council will also likely consider levying GST on entities that provide a mining platform for cryptocurrency assets and those who use virtual digital assets as a medium of exchange in purchases. Currently, 18% GST is levied only on service provided by crypto exchanges and is categorised as financial services.