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Saturday, 03 June 2017 00:00
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Santosh's edit

 

GST flexibility critical

 

Since old habits take a long time to go away, it is not surprising that those dissatisfied with the GST rates that apply to them have said they will petition finance minister Arun Jaitley and argue their case for a lower rate. Jaitley, though, is no longer the sole arbiter of rates, and this can only be done by the GST Council that includes the finance ministers of various states. That apart, the good news is that revenue secretary Hasmukh Aadhia who is the secretary of the GST Council has said it was not averse to rationalising GST rates even before the July 1 date of implementation. So, when the council meets later today to decide on rates for seven critical items—biscuits, gold, textiles, handicrafts, footwear, bidis and agricultural implements—it will also consider lowering, for instance, the 18% rate for solar panels or the 12% rate on ayurvedic medicines.

Whether this is finally agreed to is not clear, but a flexible and proactive role of the GST Council is critical since this is the only way to ensure GST really delivers. Since the approach right now has merely been one of equating rates—so the excise/service tax plus VAT is broadly the same as the GST for most items—the current GST is not going to give India the kind of consumption boost it requires. Since states were being promised 100% compensation, they should have agreed to lower rates, but for whatever reason, they did not agree to lower rates. So, when tax collections stabilise after a year or two, and if it becomes clear that there is no revenue loss, a proactive GST Council can then move towards lowering rates.

Also, in order to safeguard their revenues, states did not agree to include several items under GST. Petroleum products, for one, are out of this. While this can lead to a Rs 20,000-25,000 crore tax loss to the sector—as input credits will not be available—states were not willing to include petroleum products as they collect a lot of taxes from here. So, if GST starts delivering, perhaps the GST Council can think of including this under GST. Ideally, once GST takes off, the Council should work on a schedule, or milestones, for expanding the scope of GST as well as for reducing the revenue neutral rate.

 

 

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