GST Council Meet: Decriminalisation, Arrest Powers Scrapped, Easier Registration on Agenda

The GST Council, led by Finance Minister Nirmala Sitharaman, is set to introduce sweeping reforms aimed at decriminalising tax offences, scrapping arrest powers for GST officers, and simplifying compliance to foster a trust-based taxation environment and enhance ease of doing business across India.

Photograph: Francis Mascarenhas/Reuters

The GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state ministers, on Thursday started deliberations on sweeping policy reforms, like scrapping arrest powers of GST officers and easier registration, under GST 2.0, to ensure ease of doing business by following a trust-based taxation approach.

In a little over a year’s time since the Council approved a complete overhaul of the tax rates and slabs under Goods and Services Tax (GST), the GST Council in its 57th meeting will deliberate on decriminalising the law by removing criminal liability for nine offences and softening the provisions for 24, and raising the threshold for initiating criminal prosecution to Rs 5 crore.

Key Reforms for Business Ease

It would also discuss a common standard to be followed by GST officers across states for raising demands with a mandatory intimation to be sent before a formal notice, thereby giving opportunity to the taxpayer to be heard.

Also, if approved, no GST notice would be issued wherein the tax demand is less than Rs 10,000. Such cases currently account for about 20 per cent of all cases by number and involve a negligible amount of tax.

To deal with the fake input tax credit and notices on mismatch in credit availed, the Council will also discuss ‘invoice matching system’ in GST monthly returns wherein reconciliation of buyer and supplier invoices will happen and tax credit can be legitimately claimed.

To make compliance easier for small businesses selling on e-commerce platforms, the Council is likely to allow them to use the platform’s warehouse as a registered place of business in states where they have no premises of their own.

The small supplier only needs a place of business in one state where he would be required to complete physical verification and Aadhaar authentication, and registration in other states will be as per platform’s consent with no involvement of tax officer.

This would enables around 9.5 lakh small sellers to access a national market without opening physical offices across states, establishing tax parity across competing platform business models.

The proposed changes to the GST law would be implemented in a staggered manner beginning early next year.

The GST Council is also likely to discuss a proposal of taking up tax rate changes only once and year and making them effective from the beginning of next fiscal year, a move which would give stability to businesses.

Decriminalisation and Officer Powers

The major change that the GST Council will deliberate on Thursday is amending the GST law and scrapping of arrest powers of GST officers, besides raising the threshold to Rs 5 crore for launching prosecution.

For offences like late filing of returns classification disputes and delay in tax payment due to cash position, a taxpayer will be able to skip arrest by paying tax, interest, and a proportionate penalty. GST officers will focus on recovering taxes, while law enforcement agencies will deal in cases of legal proceedings.

Currently, GST officers have the power to arrest, after prior authorisation from a Commissioner-level officer, in cases of major offences where tax evasion, fraudulent input tax credit (ITC), or wrongful refunds exceed Rs 1 crore.

The Council would also deliberate on intelligence-led logistics and transit checks, wherein vehicles in transit will only be stopped based on specific prior authorisation by a senior officer and solely by the state of origin (except when documents are missing or buyer-liable tax applies).

This will eliminate multi-state road stoppages, drastically reduce transit times and freight costs, and make cargo movement predictable for domestic and export goods.

Streamlining Registration and Exports

To streamline the GST registration process, the Council will discuss redesigning the forms so it can be completed correctly, easily with guidance at each step and the list of documents to be uploaded.

If a taxpayer is registered in another state, his details are carried over and he may need to fill up only one form for obtaining registration in multiple states.

To make it easier for exporters of goods and services to claim refund and credit, the Council will also consider a proposal to make the definition of exports aligned with commercial activities earning foreign exchange and also remove ambiguity over the export status of services supplied through an Indian company’s overseas branch, sources said.

Further, the Council will also consider withdrawing IGST exemption on import of gold, silver and platinum imports by specified banks and nominated agencies.

Currently, imports of gold, silver, and platinum are subject to a 3 per cent IGST.

However, this tax is exempt when these precious metals are imported by banks and nominated agencies, which are periodically listed by the government.

A proposal allow employers to claim input tax credit (ITC) on premiums paid for insurance coverage provided to employees will be discussed by the Council.

Under the Goods and Services Tax law, GST is exempt on individuals buying life or health policies for themselves or their family. However, when a company buys life or health cover for its employees, an 18 per cent GST is levied on that cover, and until now the business could not claim ITC on it.

Committee Restructuring

The GST Council is also likely to consider recasting its tax officers’ committees, making them leaner as the indirect tax regime completed nine years since its rollout on July 1, 2017.

The structure of the committee, which supports the Council in overall functioning, is proposed to be recast into three consolidated bodies — the Secretariat, the implementation committee, and a single standing committee of officers.

Currently, the GST tax officers’ committee consists of the Secretariat, an implementation committee, eight standing committees, including Fitment and Law committees, and 18 sectoral groups.