Steady progress on GST, just 35 items left in top slab PDF Print E-mail
Tuesday, 24 July 2018 00:00
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With the filing becoming simpler, and the tax rates coming down, GST today is moving towards the ideal structure


When GST came into being last year in July, most criticised it for being too complex and the tax rates being too many, as well as too high. And while it was true that the state governments were insisting on keeping the rates high for fear of tax collections falling short, it was never clear why the Centre didn’t push for lower rates since it was, in any case, guaranteeing the states that they would get a 14% growth in their tax revenues for the next five years—and if they didn’t, they would be paid from the compensation cess or, if need be, from the Centre’s own tax collections. The fact that the IT systems couldn’t handle the load of the filings, apart from the filing requirements being too many and too onerous—firms had to file 37 returns a year—only added to the despair over the GST the government had ushered in.

A year on, things look quite different. Though the zero GST on sanitary pads—down from the earlier 12% rate—got the most press, far more important was the fact that as compared to 226 items in the 28% tax bracket last year in July, this list has been pruned down to just 35 today. And Bihar deputy chief minister Sushil Modi—he headed the ministerial panel on simplifying GST returns filing— said last week that, over time, the idea is to reduce this list to just three items and to also look at converging the 12% and 18% rates; when GST was being formulated, the chief economic adviser had talked of a 15-16% ideal rate. In which case, as Arun Jaitley had promised while ushering in GST as the finance minister, as collections stabilised and started rising, both the number of slabs as well as the rates themselves would reduce.



The GST Council, though, has to be careful about applying zero rates on more commodities. This may not matter too much for sanitary pads since there is no GST on cotton that comprises around 80% of the pad’s cost. But, even in this case, GST will have to be paid on the cotton cloth used as well as the plastic sheet used in the making of the pads—this could add up to around 25 paise and cannot be claimed by manufacturers since the final product pays no GST. It does not matter too much in the case of pads because the impact of the GST cut from 12% to zero is much higher, but as Subramanian had pointed out in the early days, a zero duty on an Indian product would mean a zero CVD on imports and, because of unutilised input credits—due to the zero-rate—this would mean imports would be cheaper.

The GST Council has also done well to simplify filing for around 95% of assessees since, instead of having to file 37 returns a year, those with a turnover of less than Rs 5 crore a year will file one return a quarter plus one master return in a year; the rest will file one return every month and one master return every year. And since a decision has been taken to allow manufacturers to get credit only for invoices that have already been uploaded, this means buyers will have to ensure their suppliers all file their returns regularly—to that extent, the system becomes somewhat self-policing; this is important because, with elections within a year’s time, it is unlikely the government will want to push aggressive invoice-matching that really lies at the heart of making tax evasion near-impossible in the GST taxation system.



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