The upcoming GST Council meeting this week is expected to prioritise addressing the inverted duty structure (IDS) impacting sectors such as textiles, footwear, and fertilisers, sources reveal. However, the online gaming industry's plea for relief from a substantial Rs 1.12 trillion tax demand will be deferred to a future meeting.
The IDS issue creates a cash flow burden for businesses as they accumulate Input Tax Credit (ITC) that cannot be effectively utilised due to complexities and litigations related to IDS refunds. The group of ministers (GoM) led by Uttar Pradesh finance minister Suresh Kumar Khanna is examining rate rationalisation to address these concerns.
“Their interim report, submitted in June 2022, highlighted how IDS disadvantages domestic manufacturers,” a source explained. “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 finalises its recommendations for various sectors, including utensils, tractors, agricultural implements, fertilisers, and consumer goods, some clarity on the refund process is anticipated.
The GST Council is unlikely to consider the online gaming industry’s plea for relief from retrospective taxes, instead focusing on GST law amendments and steps to improve the ease of doing business, feel the experts. Experts also emphasised on the need for relief from new corporate guarantee valuation rules. Smita Singh, partner at S&A Law Offices, stressed the importance of clarifying the tax regime for online gaming.
The GST Council's efforts to resolve the inverted duty structure are seen as crucial for reducing costs and boosting the competitiveness of domestic manufacturers against imports. As businesses await further reforms, the focus remains on enhancing the overall ease of doing business within the GST framework.
