The Goods and Services Tax (GST) Council on Wednesday departed from its practice of consensus-based decision-making, opting the first time for a vote to settle differences among states over the taxation of lotteries.
The council also deliberated upon a presentation made by a committee of officers set up to study revenue augmentation, but refrained from any generalised rate increase or removal of exemptions.
“The council has decided to impose a single rate of 28% on state-run and authorised lottery,” union finance minister Nirmala Sitharaman said after the 38th meeting of the GST Council.
It decided to put the matter to vote following wide divergence over whether there should be a single rate or dual rates.
“Every attempt was made to keep the set tradition alive … Every attempt was made to convince … But, eventually the council was reminded that the rules allow (for voting) and that tradition is not part of the rule book,” Sitharaman said. “I took the sense of the house … and we went ahead with the decision to have a vote. So, it is not enforced by the council, or by me as the chair.”
All decisions in the previous 37 meetings of the GST Council, headed by the union finance minister with state ministers as its members, had been taken unanimously.
Some Steps Against Tax Evasion
These included crucial ones on the finalisation of the GST law as well as the rates for goods and services.
On Wednesday, 21 states voted in favour of the single rate of 28% on lotteries, while seven voted against, an official said. The GST Act had prescribed two rates — 12%, if the lotteries are sold within the same state, and 28%, if a state sells its lottery tickets outside its jurisdiction.
Tax experts said hopefully the council wouldn’t have to resort to voting frequently and Wednesday’s remained an exception.
“For the success of GST, it’s important that the Centre and states work together and take decisions with consensus as they have been doing till now,” said Pratik Jain, leader of indirect taxes at PwC.
REVENUE IN FOCUS
The council gave “necessary guidance” to officers for analysing the impact of tax exemptions and concessions, the tax base and compliance measures needed to keep pace with revenue needs, a government statement said.
The officers’ committee, which made a presentation of GST data before the council, didn’t make any direct or indirect suggestions on tax rates. The minister said it would further analyse the data and come up with a report with its recommendations, which would be taken up at the next council meeting.
Maximising GST revenue has been one of the focus areas for the government. Collections remained below Rs 1 lakh crore for three continuous months, before it crossed the mark in November.
The council, meanwhile, took certain steps against tax evasion. It slashed the input tax credit to 10% from 20% of eligible credit if invoices or debit notes were not reflected in filings. To check fake invoice, it allowed officers to take suitable action to block credits that they believed were fraudulently claimed.
COMPENSATION FOR STATES
States raised the issue of a delay in the release of compensation that they were promised against any revenue loss from the implementation of GST. Some of them were apprehensive about the availability of funds to be distributed in the future.
“The Centre will not have appropriate funds to compensate states after February,” West Bengal finance minister Amit Mitra said. He said the government withheld payment to states despite having Rs 42,000 crore in its kitty.
Asked about the issue, Sitharaman said that during the discussions everyone recognised that an instalment of the compensation was released a few days ago.
The Centre had on Monday released Rs 35,298 crore as compensation to states. “There’s no gap (in communication) within the council. In the council and in the Rajya Sabha, I have explained in detail how we remain committed to cooperative federalism and to honour the promises given on GST,” she said.
CHANGES IN A FEW RATES
Sitharaman said the council decided to tax woven and non-woven bags at 18%, compared with 12% at present.
It exempted from tax the upfront amount payable for long-term lease of industrial and financial infrastructure plots by any entity that is owned 20% or more by the Centre or state governments.
On lotteries, the new unified rate of 28% will be applicable from March 1, 2020, revenue secretary Ajay Bhushan Pandey said.
The tax is levied on the face value of the lottery tickets, inclusive of the prize money to be distributed to the winners, margin of agents, retailers and distributors.
State governments and the lottery industry had represented to the council on the issue and it had set up a group of ministers to examine it. The council, which had considered the issue in its July meeting, then referred it to the attorney general for his view. But, divergences continued among states, prompting the decision by vote.
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