The 55th GST Council meeting highlighted key unresolved issues that demand immediate attention. Topics such as reducing GST rates on health and life insurance, rationalising rates for food delivery aggregators, and addressing the compensation cess dominated the discussions. However, no final decisions were made, leaving businesses and consumers alike uncertain about future compliance and financial impacts. The focus keyphrase “GST unresolved issues” encapsulates the core challenges discussed, as the council continues to grapple with these complexities.
The Complexity of India’s GST Structure
India’s Goods and Services Tax (GST) system is among the most intricate globally. With four tax slabs (5%, 12%, 18%, and 28%) and several exceptions, businesses face significant compliance challenges. According to a World Bank report, only five countries, including India, have four or more GST slabs, compared to 49 countries that operate with a single rate.
This complexity often leads to odd classifications, such as:
- Popcorn Tax Rates: Salted popcorn is taxed at 5%, pre-packaged at 12%, and sugared variants at 18%.
- Bread Variations: Cream buns attract a higher GST than plain buns.
- Frozen vs. Fresh Parathas: Frozen parathas are taxed differently from fresh rotis.
Such discrepancies not only burden businesses but also create room for interpretational errors and disputes.
Key Unresolved Issues
- Rate Rationalisation
The Group of Ministers (GoM) on rate rationalisation has sought more time to address the GST structure’s inefficiencies. Simplifying tax slabs and classifications could ease compliance and improve revenue neutrality. - Compensation Cess
Extended till March 2026, the cess aims to repay loans taken during the pandemic. However, clarity on its long-term impact on businesses remains a concern. - Tax on Essential Services
Reducing GST rates for health and life insurance premiums has been a long-standing demand. Lower rates could make essential services more affordable for individuals. - Taxation of Aggregators
Food delivery platforms face inconsistent tax rates, affecting pricing strategies and compliance efforts. A unified rate structure is critical. - Fortified Rice and Used Cars
Ambiguities persist in taxing items like fortified rice kernels and pre-owned vehicles, further highlighting the need for a streamlined framework.
Impact of the Current Framework
The existing GST framework affects businesses in multiple ways:
- Increased Compliance Burden: Multiple tax slabs and odd classifications make adherence time-consuming and expensive.
- Reduced Ease of Doing Business: Ambiguities in taxation discourage investment and growth.
- Room for Bureaucratic Discretion: Complex rules increase dependency on authorities for clarifications.
Case Law Highlight: Annapoorna Hotels’ GST Challenge
In a recent case, D. Srinivasan, Managing Director of Coimbatore’s Annapoorna Hotels, highlighted the tax disparity between buns and cream buns. This is a classic example of the compliance burden arising from classification inconsistencies. Courts have often stepped in to interpret such cases, underscoring the urgent need for rationalisation.
The Road Ahead
To address these unresolved issues, the GST Council must:
- Finalise rate rationalisation to simplify the tax system.
- Clarify compensation cess applicability beyond 2026.
- Reduce GST on essential services like insurance to boost affordability.
- Address classification anomalies for equitable taxation.
Conclusion
The GST Council has made significant strides in plugging systemic gaps. However, issues like rate rationalisation and tax on essential services require consensus and swift resolution. A simplified GST system will enhance ease of doing business, attract investments, and reduce compliance burdens.