GST Council may review online gaming tax, bring gas & ATF under the net
June 14, 2024 03:15 IST
The meeting, the first after the new National Democratic Alliance assumed office, is, however, unlikely to take up the long-pending agenda of an overhaul of the GST slabs.
An ongoing process of correcting inverted duty structures may still be carried forward, with changes in tax rates for some products in the textile and fertiliser value chains.
The Goods and Services Tax (GST) Council will meet here on June 22, with a packed agenda, including proposals to bring natural gas and aviation turbine fuel (ATF) under the ambit of the GST, and a review of the way the tax on consumption is applied on online gaming, casinos and horse racing.
The meeting, the first after the new National Democratic Alliance assumed office, is, however, unlikely to take up the long-pending agenda of an overhaul of the GST slabs. That would require more technical inputs, as an earlier ministers’ committee that reviewed the matter was disbanded.
An ongoing process of correcting inverted duty structures may still be carried forward, with changes in tax rates for some products in the textile and fertiliser value chains.
The 53rd meeting of the council comes in the backdrop of an electoral verdict that marked a slight shift to federalism. While these proposals would be placed before the council, the decisions will have to be taken by consensus. The states may raise revenue concerns.
Natural gas is currently outside the ambit of GST, and legacy taxes — central excise duty, state VAT, central sales tax — apply on the fuel. VAT on natural gas varies from state to state, and is in the range of 14% to 24%.
Currently on the state level, the VAT on ATF varies from 5-18%, and basic excise duty levied by the Centre stands at 11%, above which it also levies cesses.
Any move to bring natural gas under GST would have implications for the gas producers, marketers, and the entire petrochemical value chain, from polymers to plastics. Bringing ATF under GST would be a positive for airline companies, and air travellers, with the extent of benefits to each to be determined by whether and how the resultant cost savings are passed through.
ONGC, Oil India and Reliance would be among the beneficiaries of of gas being included in the GST ambit along with city gas distribution companies. The proposed regime would provide them with greater availability of input tax credits, to met their tax liability of value added outputs. The resultant operational efficiencies could boost their earnings, and/or make products across the value chain cheaper.
Gas is a feedstock for petrochem chain, like naphtha, a refinery output, which is already under GST.
Prashant Vasisht, Senior Vice President, Corporate Ratings, Icra said: “Bringing gas under GST should let companies like GAIL, Petronet LNG, and CGD entities reduce prices or result in savings for them.”
There could be similar positive impact on gas-based power capacities.
Sources in the know say the government is likely to consider a review of the 28% GST levy on full face value of bets of online gaming companies. In July and August last year, the Council had approved amendments to the GST laws to include online gaming, casinos, and horse racing as taxable actionable claims, clarifying that these activities would attract a 28% tax on the full face value of bets. During that time, it was mentioned that a review of this implementation would be conducted after six months (April 2024), but that didn’t take place.
Currently, the online gaming industry is facing around Rs 2-trillion tax liability, which they have challenged in the courts. The Supreme Court is likely to hear their petitions in July, which challenge the retrospective GST notifications that demand payment calculated at a rate of 28% based on the face value of bets.
Experts say that the GST Council faces two options: first, to refrain from taking corrective measures while the matter is sub-judice and await court directions; second, to immediately correct the disputed decision by removing the retrospective application of the 28% GST.
FE had reported earlier that the government is considering granting relief to the online gaming industry by exempting them from paying the GST at rate of 28% on the full face value of bets for the pre-October 1, 2023 period, citing official sources.
On the inverted duty structure, the government has identified a clutch of products where inverted duty structure is distorting trade and impacting manufacturing competitiveness and has initiated the process to address the issue, an official had told FE earlier.
Smita Singh, partner at S&A Law Offices said that this issue is a “major concern” for the industry, especially startups, as it increases costs and makes it tough to control the working capital. Currently, in the pharmaceuticals sector, various input medications attract 18% GST, while the final product is in 5% tax slab. Similarly in the EV sector also inputs are within the tax rate of 18-28% slab; whereas the EVs are taxed at 5% GST, which eventually leads to blocking up of capital for these manufacturers.
Saurabh Agarwal, Tax Partner, EY said that the larger issues with reference to relief on secondment, and rate rationalisation are likely to be taken up in the next GST council which will happen after June.
Mahesh Jaising, Partner, Deloitte India said that the expected clarifications on critical matters such as related party free of cost transactions and ESOP taxation from the 53rd Council meeting is also indicative of policymakers’ efforts to engage with industry stakeholders and streamline procedures based on feedback.
[The Financial Express]
