GoM proposes removal of many GST exemptions.

A group of ministers (GoM) reviewing goods and services tax (GST) rates has proposed removal of exemptions on a host of services, including for stay in relatively cheaper hotel rooms, hospital rooms above a tariff threshold and services provided by financial sector and food safety regulators.

In line with a mandate to raise the revenue neutral rate (RNR) from a little above 11% now, the group headed by Karnataka chief minister Basavaraj Bommai also proposed raising the GST rate on electronics waste steeply from 5% to 18%. Also, a rate hike is proposed for goods and services related to exploration of petroleum and coal-bed methane. These activities are now taxed at the lowest GST slab of 5%.

The GoM also proposed removal of exemptions for reinsurance of exempted insurance schemes such as weather-based crop insurance schemes and the GST Network services to the government. A few proposals aimed at correcting residual cases of inverted duty structures have also been made.

These changes are proposed even as the GoM is yet to firm up its views on GST slabs restructuring. An overhaul of the GST slabs – mainly four now, 5%, 12%, 18% and 28% – is expected to lead to a reduction in the number of slabs and an increase in the RNR.

The proposals will be considered by the GST Council, which comprises the Union finance minister and state finance ministers, as it meets in Chandigarh on June 28-29.

The slabs recast, however, is likely to get delayed in the wake of persistently high inflation. The restructuring with the objective of raising the RNR will inevitably lead to rate increases on a large number of goods and services and thereby stoke inflation.

The GoM, which met virtually on June 17, decided to seek more time from the GST Council to finalise its main report concerning restructuring of the GST slabs.

Sources said the GoM suggested levying GST at the rate of 12% on hotel accommodation below Rs 1,000, a move that would bring a large segment of the hotel industry under the GST purview. Currently, no GST is levied on hotel rooms with tariff below Rs 1,000, while the tax is 12% on rooms with tariffs between 1,001 and7,500, and 18% on more expensive rooms.

Similarly, while all hospital services are currently exempt from GST, the GoM has suggested a 5% levy without input tax credit on hospital rooms with a daily tariff of `5,000 or above. The move is in view of the fact that high-end hospitals are now providing premium accommodation to patients. However, ICU-related room tariff will continue to be exempt.

Another hospital services provided by cord blood banks may be covered under the tax net as well. The rate could be either under 5% or 12% bracket.

The exemption provided to business class travels from airports in the north-eastern states will end soon if the Council accepts the GoM proposal to cover it under the tax net. Currently, GST is levied at the rate of 12% on business travel by air in rest of the country.

The GoM also recommended that services provided by the Reserve Bank of India to banks and financial institutions, IRDAI to insurers and intermediaries and Sebi to companies be brought under the tax ambit. It also suggested withdrawing exemption on services provided by FSSAI to food business operators. While the rate at which these will be taxed is not yet clear, most services attract 18% GST now.

“While the progressive removal of exemptions under GST has been one of the stated objectives, it is essential to implement such removal of exemptions in a phased manner without having any adverse consequences on the impacted businesses, which are recovering from two years of business uncertainty and supply chain challenges,” MS Mani, partner, Deloitte India, said.

Retail inflation eased to 7.04% in May from a 95-month high of 7.79% in April. It still breached the upper band of the central bank’s medium-term target (2-6%) for a fifth straight month. The RBI is still widely expected to go for a third round of rate hike in August but the moderation in inflation substantially reduces the possibility of any out-of-cycle rate action in between.

Source from :- https://www.financialexpress.com/economy/gom-proposes-removal-of-many-gst-exemptions/2568581/