Course correction? on GST decisions

Revenue and optics seem to play a greater role in GST decisions

Updated - December 03, 2021 10:00 am IST

Published - December 25, 2018 12:02 am IST

Under attack on how the indirect tax regime has panned out, the Goods and Services Tax Council on Saturday announced a set of feel-good moves to reassure diverse stakeholders. For consumers, the peak tax rate of 28% levied on cinema tickets above ₹100, large screen television sets or monitors, digital cameras and lithium ion batteries, among others, was bought down to 18%. For businesses still coping with compliance niggles, more time has been granted for filing this year’s annual returns; the promise of a simpler return filing system has been dangled (by July next year); and a single, fungible e-cash ledger has been proposed to replace the present system in which credits available under Central GST cannot be set off against State GST dues. Last but not the least, concerns expressed by several States about revenue trends since the GST’s introduction in July 2017 have been taken on board, and a ministerial group will be tasked with assessing the structural patterns affecting revenue collections in some States. This is an accommodative gesture from the Council, whose chief — Finance Minister Arun Jaitley — cited recent revenue trends that suggest compensation payable to the States has reduced substantively from last year. It is anyone’s guess how much of a role the recent reverses suffered by the Bharatiya Janata Party in Assembly elections played in the latest decisions to slash rates or to ease the burden on businesses.


GST rationalisation is still a work in progress. It has long been clear that traders need a simpler filing system, faster refunds and other mechanisms to ease their cash flows. Consumers, for their part, are yet to get a clear definition of what qualifies as a good or service for the ‘sin’ category. From over 200 items that were initially kept in the 28% ‘sin’ goods rate bracket, it is now down to just 28 items, which include cement (hardly a luxury for a country with a massive infrastructure investment agenda) and auto components. That the original rates were neither thought-through nor reviewed prudently is apparent with the Council’s decision to reduce the 28% levied on disabled persons’ carriage parts and accessories to 5%. Since cement yields ₹13,000 crore in GST and auto parts another ₹20,000 crore, the Council has resisted rate cuts on these items for now. This is the problematic part — revenue and optics considerations seem to have a greater role in rate setting than the nature of the goods or services to be taxed. The Prime Minister announced impending cuts in the 28% slab, and reacted positively to the film industry’s demand for lower GST. Seeking to correct popular perception ahead of the elections is one thing. But frequent tweaks to the structure, and an impression that rates can be altered by lobbying the powers-that-be, risk ruining the promise the GST held for investors wary of India: a predictable, simple and stable tax regime.

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