September 5th 2024.
The city of Chennai was buzzing with activity as the Union Finance Minister, Nirmala Sitharaman, addressed the media on Thursday. In her speech, she shed light on the current state of the goods and services tax (GST) rate, which she stated was much lower than the originally suggested revenue neutral rate of 15.3%. This means that taxpayers will have a lesser burden to bear.
During an event organized by the Revenue Bar Association, the Finance Minister highlighted that the average GST rate has now decreased to 12.2% as of 2023. This is a significant drop from the revenue neutral rate in GST. She also emphasized that while the government needs to raise revenue, their top priority is to simplify the tax system and ensure compliance for taxpayers.
The timing of her statements is crucial, as the 54th GST Council meeting is scheduled to take place in New Delhi on September 9. In a previous post on X, the minister had mentioned that despite the impact of Covid-19 on revenues and the lower GST rate, collections have now reached pre-GST levels. She attributed this to the Centre and States working together to improve tax administration and reduce the burden on taxpayers.
For those unfamiliar with the term, the revenue-neutral rate is the point at which the government collects the same amount of revenue even after changes in tax laws. Addressing concerns about friction between the Centre and states, the Finance Minister reassured that the federal structure in GST is respected, and both parties are working together to widen the tax base and promote development.
As the GST Council meeting approaches, Ranjeet Mahtani, Partner at Dhruva Advisors, shared his thoughts on the agenda. He mentioned that the Council has had some fully loaded meetings in the past and is expected to discuss various important issues such as rate reduction for hybrid vehicles, life insurance premiums, and addressing the inverted duty structure in textiles and pharmaceuticals.
Mahtani also pointed out that there is a need for clarity on the compensation cess, and it is expected that the meeting will address the issue of GST on foreign branch office transactions, including those of airlines, shipping lines, and IT giants. He also highlighted the need for a review of the taxation regime introduced in October 2023 for the online gaming sector, which has been long overdue.
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