While the next Goods and Services Tax (GST) meeting at Delhi's Vigyan Bhawan on Saturday may not be considered as crucial as some of the previous ones were, given the economic slowdown and 'Centre versus state' shadows on the last couple of meetings, there could well be a major blow to the ordinary consumer—an increase in the price of mobile handsets.
That could be the likely outcome if the GST Council decides to take up the matter of inverted duty structure plaguing the mobile phone sector. Simply put, this means the raw materials are taxed higher than the final product, leading to blocking of input tax credits for manufacturers.
A similar situation exists in the textile and footwear sectors.
Reports say the Fitment Committee, which recommends the agenda for the GST Council to take up in its meeting, has suggested increasing the GST on mobile handsets to 18 per cent, since raw materials that go into phone manufacturing are charged at that rate, while phones were being charged at 12 per cent until now. Of course, handset manufacturers plead that it should be the other way around, with GST on raw materials to be brought down at par with that of handsets at 12 per cent, especially considering the troubled days ahead when phone sales will face a problem as raw material imports have been stuck due to the coronavirus scare in China.
Many yarns and similar raw material for textiles are charged at 12 per cent while finished fabric has a GST of 5 per cent. The council is likely to look to sort out this anomaly as well. Footwear also has many anomalies, with finished products attracting multiple GST rates depending on their cost price, while raw materials also have differing taxes.
A decision to postpone two major structural changes—e-invoicing and the launch of new GST returns system—is likely to be taken at the meeting. Both were supposed to have been implemented from April 1. “Preparations are still ongoing and there is ambiguity on certain key aspects,” points out Archit Gupta, founder and CEO of CleartTax. Gupta added, “(These changes are a) mass digitisation exercise for the entire ecosystem (and) businesses will need enough ramp-up time to bring their internal systems, technology and people up to speed”.
Beyond tax cuts and hikes, the GST Council is likely to discuss issues with invoices, the GSTN network glitches and linking of e-way bill system with National Highway Authority's FASTag network as well as the proposed lottery cash award to encourage customers to ask for invoices. State finance ministers, of course, can be counted on to bring up the issue of delay in paying the state's dues from the GST revenue, including the matter of whether it could be extended beyond the earlier-stipulated five years.
