The recent Assembly election in Karnataka and the Ministerial council shuffle in Tamil Nadu have necessitated the reconstitution of at least three Ministerial panels responsible for recommending crucial reforms to the indirect tax regime.
The resignation of Basavaraj S. Bommai, the former Chief Minister of Karnataka and chairperson of the GST Council’s group of ministers (GOM) tasked with streamlining GST’s complex rates system with multiple tax slabs, has further compounded the need for a new convenor to lead the panel.
The GOM was initially given a two-month deadline when it was formed in September 2021, but the government has been slow in pursuing the GST rate rationalization agenda due to concerns over high inflation in 2022-23. Significant structural changes are likely to result in increased tax rates for various items.
With Basavaraj S. Bommai’s departure from office, the GST Council will need to select a new convenor for the panel, which includes Finance Ministers from six other states, such as K.N. Balagopal from Kerala. Palanivel Thiaga Rajan, the former Finance Minister and current IT minister of Tamil Nadu, participated in two of the Council’s groups of ministers (GoMs), one dedicated to reforming GST’s IT system to combat evasion and the other focused on determining the appropriate tax treatment for casinos, online gaming, and horse racing.
The GOM, including former Bihar Deputy Chief Minister Tarkishore Prasad, was formed by Mr. Bommai, but no official communication has been made about any new member since August 2022. The panel was responsible for proposing solutions to the inverted duty structures that have affected the GST regime.
In June 2022, an interim report with corrective recommendations was presented to the Council, and most of them were accepted. An inverted duty structure results in higher taxes on inputs than the final product.
The practice of the GST Council is to replace outgoing members due to external factors with Ministers from the same state. It is expected that Thangam Thennarasu, the new State Finance Minister, will replace Mr. Thiaga Rajan.
However, there have been occasions when this principle has not been followed, such as when the GOM on casinos and online gaming was initially chaired by Nitin Bhai Patel, the former Deputy CM of Gujarat, but later handed over to Conrad Sangma, the Chief Minister of Meghalaya, despite the state not having a representative on the panel.
Being left without a convenor and major representatives, the GST Council Decision on Online Gaming may face further delays as a reconstitution is warranted in the present circumstances.
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