In a recent announcement by Finance Minister Nirmala Sitharaman at the 39th GST Council meeting held today at Vigyan Bhawan in New Delhi, the Good and Services Tax (GST) on mobile handsets will be hiked from the current 12% to 18%, to consequently result in the increase in the purchase price of mobile handsets.

The meeting saw attendance from the finance ministers of States & UTs and senior officers from states and the centre. In a unanimous decision, the price of mobile phones has been increased due to the inversion. The duty levied on mobile was 12%, but some of its components attracted 18% duty, hence the increase in the purchase price of mobiles.

An increase in mobile phone prices will be detrimental to consumerism and impact local manufacturing in the country. Will this decision be detrimental to accomplishing the vision of the nation - Digital India?

Finance Ministry's attempt to rationalize tax rates

Earlier this week, there were reports that the GST Council might rationalize the tax rates on five sectors. Manufactured goods such as mobile phones, fertilizers, footwear, renewable energy equipment, and man-made textiles attract a GST of 5 to 12 percent, and the GST on finished goods is less in comparison to the duty on inputs thus leading to an inverted duty structure.

The council also rationalized the GST rates on handmade and machine-made matchsticks to 12 percent, while the GST rate on Maintenance, Repair, and Overhaul (MRO) services of aircraft was slashed from 18 percent to 5 percent, with full input tax credit. "This will assist in setting up of MRO services in the country," the finance minister said.

Corporate tax
Finance Minister Nirmala SitharamanPTI

According to a senior finance ministry official, "A decision was taken to end the inverted duty structure." It's on mobile phone manufacturers to decide if they want to increase the price of their mobile handsets since the inverted cost structure was an issue for the manufacturers as well. The official further added that a 6% hike in GST doesn't necessarily mean it will translate into an increase in the price of mobile phones.

In an inverted cost structure, it is required of the government to refund the excess amount when the tax on finished products is lower than the tax on raw materials.

Plans underway: GST and beyond

Also, in the panel meeting talks are on to postpone the implementation of the new return filing system and e-invoicing system, from the earlier proposed date of April 1. The deliberation for the postponement is partially because of technical glitches experienced by users on the GST portal. The Finance Minister seems to have raised the issue with tech-leader Infosys, responsible for the back-end management of the GSTN website.

The Council has further approved the deployment of 60 additional IT skilled workers to handle 3 lakh entries instead of 1.5 lakh at present, by further improving the necessary hardware framework to reduce technical glitches faced by taxpayers when filing e-returns and uploading other documents on the GST Network. The council set a deadline for making necessary improvements at the backend to July 2020, instead of the earlier requested time limit sought by Infosys chief Nandan Nilekani of January 2021.

Nandan Nilekani
Nandan NilekaniReuters

Nilekani was asked to be present for the next three GST Council meetings, by Sitharaman to update the Council on the progress. Nilekani on his part assured that he would personally monitor the progress of the GSTN project.

The deadline for filing the GST9R and GSTR9C for FY18-19 has been extended by the Council from the earlier decided March 31, to now June 30. "Late fees will not be levied for the delayed filing of the annual return and reconciliation statement for 2017-18 and 2018-19 for taxpayers with aggregate turnover of less than Rs 2 crore," Sitharaman said. Those with Rs 5 crore annual turnover are mandated to file for GST. Earlier the turnover limit was set at Rs 2 crores. Considering the current economic scenario and coronavirus outbreak, the Council decided to not hike rates of footwear and fertilizers.

Also, the hike in excise duty by Rs 3 will not result in an increase in fuel prices. "Fuel prices have actually gone down, I can confidently say there is no increase in fuel prices in any part of the country," Sitharaman added.

Sitharaman said a separate meeting will be held to discuss the delay in payment of compensation cess to states. In light of the government offering GST compensation worth Rs 1.2 lakh crore to states, the centre would seek legal opinion on the issue of borrowing and subsequent repayment of funds by the member states.