More GST rate changes likely to address inverted duty, exemptions – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/policy/more-gst-rate-changes-likely-to-address-inverted-duty-exemptions/articleshow/93579401.cms

Synopsis

Inverted duty refers to structures where the rate of tax on inputs is more than the rate of tax on outward supplies, which discourages value addition. If required, tax authorities will engage with industry for feedback, the official said.

The Goods and Services Tax (GST) Council may go in for another round of rate changes to correct the remaining instances of inverted duty, apart from withdrawing some more exemptions. A group of ministers (GoM) headed by Karnataka chief minister Basavaraj Bommai is working on the second round, people aware of the matter told ET.

“The inverted duty correction exercise has not concluded yet and there is more work left,” said a senior official, adding that the GoM is working on the next list and a proposal may be floated before the next council meeting, which is likely in September. “The last two-three meetings were productive, with many important decisions being taken. But some items are still pending, including textiles,” the person said.

Inverted Duty Structures
Inverted duty refers to structures where the rate of tax on inputs is more than the rate of tax on outward supplies, which discourages value addition. If required, tax authorities will engage with industry for feedback, the official said.

Inverted duty structures also prevail in automobiles, including electric vehicles, some electronic items, urea and other fertiliser inputs, according to experts.

“The correction in inverted duty structure in sectors such as textiles, electric vehicles, etc, would help the industry in liquidating their accumulated credits, smoothen working capital issues and reduce compliances,” said Saurabh Agarwal, tax partner, EY.

The resolution of inverted duty structures in sectors where production-linked incentive (PLI) schemes have been introduced will help improve the internal rate of return. Currently, companies in these sectors are not able to utilise the input tax paid on the procurement of capital goods; nor are they able to get refunds toward this, leading to increased working capital costs, Agarwal said.

In September last year, the GST Council decided to rectify the inverted duty structure for footwear and textiles. Duty on footwear and finished apparel of any value was set at 12%, effective January 1. Earlier, the GST rate was 5% for sale value up to Rs 1,000 per piece in the case of finished apparel such as shirts, and per pair in the case of footwear.

Traders and manufacturers opposed the increase, saying it would adversely impact India’s textile industry and lead to job losses. Many states – including Rajasthan, Telangana, West Bengal and Delhi – opposed the increase, which was eventually rolled back.

Excluding textiles, the GST Council has continued with the exercise to correct duty inversion.

In June, the council adjusted rates to correct inverted duty on items such as edible oil, solar water heaters, LED lamps, printing ink and knives, among others. Additionally, it imposed 5% GST on pre-packaged and pre-labelled retail packs of certain food items to address tax evasion. It also removed many items from the exemption list.

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