Reset mode: On GST reform

As GST turns five, its metamorphosis into a truly Good and Simple Tax needs greater Centre-States dialogue 

July 02, 2022 12:10 am | Updated July 03, 2022 12:03 pm IST

The Goods and Services Tax (GST) Council met over two days this week — its first ‘regular’ meeting after a nine-month break — with much on its plate, stemming from four ministerial groups’ recommendations to fix various aspects of the indirect tax regime that remains a work in progress five years on. It ratified three of the four reports, put off one for further deliberations based on concerns flagged by a State, with a commitment to reassemble and resolve the impasse holistically in little over a month. A new ministerial panel is being tasked with figuring out the long-pending constitution of an appellate tribunal for GST disputes, to move ahead. Based on an ‘interim’ report of a panel to rationalise tax rates, exemptions have been scrapped on several items and rates altered for others to correct inverted duty structures. This may translate into higher prices on many goods and services (and reductions for a few) from July 18, although their impact on inflation is difficult to ascertain. However, a larger restructuring of the GST’s multiple rates’ structure, with an increase in levies to bolster revenues that have fallen short of expectations, partly due to rate cuts earlier effected as electoral tools, has been put off. With inflation expected to remain buoyant, that exercise may have to wait longer.

Apart from the fine print of the Council’s decisions, which include tighter norms on the horizon for registering new firms and closing of tax evasion loopholes, there is a more critical takeaway. That the deliberations were constructive and not combative, especially amid the brewing trust deficit between the Centre and States in the past few meetings and the prolonged pause since it last met, bodes well for the necessary next steps to make GST deliver on its original hopes. Not a single member raised the recent Supreme Court order that some States believed had upheld their rights against ‘arbitrary imposition’ of the Centre’s decisions in the Council. Moreover, over a dozen States brought up an ‘extra agenda item’ — their anxieties about the sunset of assured revenue growth from July 1, on which even Ministers from BJP-ruled States spoke up to seek the continuance of GST Compensation for some years. That States are no longer driven by party whips in this critical forum, should enrich the quality of dialogue and outcomes. That the Centre ‘heard them out’ and left the issue open, unlike the last Council meet when its response was akin to an outright ‘No’, is most refreshing. Taking a clear call, one way or the other, on continuing this support, will be ideal for the Centre and States to plan their fiscal math better. Just as sustaining and nurturing this fledgling federal compact is critical to make the GST work better for all, sooner rather than later.

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