GST Council meet: Why correcting tax anomalies is a long journey

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NEW DELHI: Federal indirect tax body, the GST Council, which meets later today, is expected to consider tax rate changes on medical supplies needed in prevention and treatment of covid, but correcting tax anomalies in a host of sectors is likely to remain a work in progress.

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The problem of inverted duty structure or raw materials attracting higher taxes higher than finished products is a major issue in sectors like fertilizers, footwear and textile industry, which officials believe affects producers without any benefit to consumers. It also makes domestic industry less competitive against imports.

The Council is likely to take up a proposal to correct the inverted duty structure of footwear valued upto ₹1,000 by raising the GST rate from 5% to 12% but a decision is expected to be political as it is a mass consumption item. More expensive footwear items are taxed at 18% now. While economics and business realities support a rate increase for correcting the tax anomaly, rate hike has to be politically acceptable among Council members.

Officials of the Council have examined the need for raising the GST rate on fertilizers from 5% to 12% but this is unlikely to be taken up now, said a person briefed about the discussions between central and state governments.

In case of textiles too, officials have examined tax rate changes needed to correct anomalies. The idea is to limit the 5% tax to fewer items in this sector but it remains to be seen if it gets political support in the Council.

While there may be a case for correcting tax anomalies, one view among officials is that tax rate changes should not be seen from the perspective of industry alone and consumer interest, especially in the case of mass use items, should be taken into account equally.

Demands from states to give tax relief on medical supplies is expected to be a major part of discussions on Friday.

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