Mixed results

GST appellate tribunal will improve ease of doing business

The Goods and Services Tax (GST) Council took some important decisions in its 50th meeting on Tuesday. The Council, for instance, paved the way for setting up the GST appellate tribunal. The relevant provision of the law will be notified with effect from August 1. Benches will be set up in states, starting with state capitals, and there will be a principal Bench in Delhi. It will now be crucial that these Benches are set up at the earliest so that disputes can be resolved in time, which will help improve ease of doing business. Disputes with tax authorities thus far had to be taken to high courts where redress is not easy because of the general backlog of cases. The establishment of an adequate number of Benches in all states thus will help both businesses and the tax administration.

The other important decision was the imposition of GST on online gaming, casinos, and horse racing at a 28 per cent rate, which will bring them on a par with gambling. Businesses, particularly in the online gaming space, were arguing for a lower tax rate. It was argued that a higher rate of tax will kill this rapidly growing sector. Since technology is often not constrained by national boundaries, gamers can easily move to foreign platforms at the cost of Indian firms. India, as a result, will lose out in an emerging sector, with implications for job creation. The logic of a 28 per cent GST on the entire turnover of online gaming instead of only on its value-added portion is also unclear. It can be argued that the Council should have considered these aspects. Given the decision has been taken after much deliberation, a review is unlikely in the near term.

Some of the other decisions highlight basic design and implementation failings in the system, which should have been addressed long ago. For instance, the Council lowered the service tax levied on food and beverages sold at cinema halls from 18 per cent to 5 per cent. It further tweaked the definition of sports utility vehicles for the imposition of cess over the GST. It lowered the rate applicable on uncooked/unfried snack pellets, fish soluble paste, and some other items. This selective tinkering with tax rates, as was the case in the pre-GST era, should be avoided. It is crucial that tax rates are clear and stable. While the broader rationalisation of rates and slabs is long overdue, it should preferably be done in one go after proper review and consultations.

Notably, some members of the Council also raised the issue of amendment to the provisions of the Prevention of Money Laundering Act (PMLA), 2022, enabling the Enforcement Directorate (ED) to share information with the GST network. This is said to help the recovery of GST evaded through money laundering. Tax authorities at both the Union and the state level, to be sure, are working to plug the compliance gaps. A large number of bogus entities have been discovered, along with networks making fake input tax credit claims. It is nobody’s case that tax authorities should not go after those gaming the system. However, it is also important that inconvenience to honest taxpayers is minimised. In the context of the PMLA provision, it can be argued that both the ED and the tax administration need to be selective in their approach. The provision should not become a method of raising unjustified tax demands.