GST: Welcome changes

Whether it is the effect of the recent electoral setback, or some other reason, but the changes in the GST rates, procedures and time-lines, and the promise of further fine-tuning, are most welcome. A progressive tax which replaced a host of state and central levies, was nonetheless implemented in hurry. Maybe the hurry was justified for without the urgency shown in rolling it out the political consensus the government arranged at that time would have been eluded it due to extraneous factors.

Happily, the initial glitches, especially in the dedicated digital platform, have largely been sorted out. It is no longer a nerve-wracking experience which it was in the initial period. Having said that, there are still lots of people who remain irreconciled to the switch to the GST. Essentially, it is the small and mid-level traders and businessmen  who  hitherto had learnt to game the tax system but now, under the new tax regime, find it hard to avoid and evade. Ironically, this class of businesses had all along formed the core support-base of the BJP. Slowly but surely, it is now coming to terms with the new tax regime and drop its opposition to GST, especially after the latest rationalisation a couple of days ago. Last Saturday, a slew of changes were announced after the meeting of the GST Council. The peak 28 per cent rate on quite a few services and goods was slashed to 18 per cent. Ordinary people are likely to benefit from the reduction in the cinema tickets costing Rs one hundred or more to 18 per cent, and to 12 per cent from 18 per cent on tickets costing less than Rs one hundred, a decision which has been profusely welcomed by the film industry. Leading representatives of the industry had met the Prime Minister in Mumbai only a few days earlier to seek the said reduction.

A number of other items such as large television sets, monitors, digital cameras, lithium batteries, etc. too would now attract lower 18 per cent tax from the earlier 28 per cent. Eventually, the objective is to pare down the list of items attracting 28 per cent tax to barest minimum while finding a mean rate of tax between 12 and 18 per cent. For example, how cement should attract ‘sin’ tax at 28 per cent defies logic, though the need to meet  the revenue targets of various states would be a factor. But then levying such a prohibitively high tax on cement which is integral to the labour-intensive real estate sector can be counter-productive. Happily, Finance Minister Arun Jaitley has assured the sector of a reduction on cement to a reasonable level very soon. Such a reduction might result in lower than the current  Rs 13,000 crore collections that GST raises  annually. Maybe that loss in lower tax would be made up by the sale of  higher volumes of cement once the real estate sector emerges from the slowdown. An extension in time for filing GST annual returns too was granted. Indeed, the GST Council has proposed to replace the current system of credits available under  central GST to be offset against state GST to make it more assessee-friendly.

Meanwhile, on Monday Jaitley presented a roadmap for a long term GST which will have one standard rate for most goods and services with accompanying slabs of zero and five per cent while the higher sin tax would be reserved for a handful of items such as liquor and exceptional drugs, etc. However, he cautioned that it would take ‘some reasonable time,’ which means after the parliamentary poll. Revenue needs of the states and the centre would have to prevail while fixing GST rates, but in a growing economy with better tax compliance it should not be hard to fulfill the two seemingly clashing objectives. Unable to resist a dig at the Congress Party, the finance minister noted that under the old tax system the rate of tax on, say, cement worked out to a whopping 31 per cent. “ The Congress oppressed the country with a high indirect tax rate of 31 per cent and now talks of a lower GST.”  Giving a break-up, he said of the 1216 commodities under GST, 183 attracted zero rate, 308 five per cent, 178,  12 per cent and 517,  28 per cent. The 28 per cent slab, he said, was fading.  But what is most reassuring is the continuing effort of the government to fine-tune the GST process to make it consumer-friendly. The path to one-country, one tax is being smoothened further.

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Free Press Journal