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regular-article-logo Sunday, 14 July 2024

GST Council meeting likely to focus on resolving inverted duty structure across sectors

The inverted duty structure creates a cash flow burden for businesses. They accumulate Input Tax Credit (ITC) that cannot be effectively used because of the complexities and litigations surrounding inverted duty structure (IDS) refunds

Our Special Correspondent New Delhi Published 19.06.24, 11:13 AM
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The GST Council meeting later this week is expected to focus on resolving the inverted duty structure plaguing sectors such as textiles, footwear, and fertilisers, according to sources.

However, online gaming companies’ plea for relief from a hefty 1.12 trillion tax demand will have to wait for a future meeting.

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The inverted duty structure creates a cash flow burden for businesses. They accumulate Input Tax Credit (ITC) that cannot be effectively used because of the complexities and litigations surrounding inverted duty structure (IDS) refunds.

The group of ministers (GoM) led by Uttar Pradesh finance minister Suresh Kumar Khanna is currently examining rate rationalisation.

“Their interim report, submitted in June 2022, highlighted how IDS disadvantages domestic manufacturers,” the source added. “It prevents them from using ITC on services and capital goods, leading to increased costs and making them less competitive compared with imports.”

While the committee awaits finalising its recommendations for utensils, tractors, agricultural implements, fertilisers, and consumer goods, some clarity is expected on the refund process.

“The GST Council is unlikely to consider the online gaming industry’s plea for relief from retrospective taxes. The council will focus on GST law amendments and steps to improve the ease of doing business,” Ranjeet Mahtani, partner, Dhruva Advisors, said.

Vivek Baj, partner at Economic Laws Practice, expects clarifications on Esop taxability and corporate guarantees.

Shivam Mehta, executive partner at Lakshmikumaran and Sridharan, emphasised the need for relief from new corporate guarantee valuation rules, while Smita Singh, partner at S&A Law Offices, stressed the need to clarify the tax regime for online gaming.

“Businesses would expect that the next phase of GST reforms — cut in the number of rate slabs and the gradual inclusion of petro products, along with changes to improve ease of doing business — are kicked off in the meeting on June 22,” M.S. Mani, partner at Deloitte India, said.

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