Dr D M Deshpande
When GST was rolled out last year, there was some criticism that it was too complex, process quite onerous and tax rates very high. Some of these issues have been addressed by the GST council. Several states were keen on retaining higher GST rates as they had apprehensions as regards loss of revenue in the transition period. But it is not clear why the Centre did not press hard for lower rates, after all, states were promised 14 per cent per annum growth in tax revenues for the next five years. Time and again the central government had promised that any shortfall in tax revenues for states will be made good from cesses and if need be from central taxes. It transpired that the IT system could not bear the burden of tax filings, that the firms last year had to file 37 returns added to the woes and despair of GST and its process.
Now, after a year plus of GST, things look much better. Last week’s announcement that pruned the list of highest tax bracket of 28 per cent means that there are just 35 items left in this category. To put it in perspective, there were 226 items in the list of items attracting 28 per cent levy last year in July. A major chunk, of 177 items, was removed from this list in November 2017. Yet the announcement with regard to sanitary napkins being exempt from GST got the maximum press coverage!
Experts have questioned the need and efficacy of a rate as high as 28 per cent. Many have opined, which includes the outgoing Chief Economic Advisor, that it should not be there. Even if it has to be retained, it should only be applied to so-called ‘sin goods’, the number of which should not be more than three as rightly observed the Bihar Deputy Chief Minister Sushil Modi. He headed the ministerial panel on simplifying returns filing, he also mentioned about the possible convergence of 12 and 18 per cent rates going forward. Most right thinking persons feel that a rate of around 16 per cent is an ideal one; most of our goods and services need to be taxed at this rate. Right from the inception, this is the thought process; as GST stabilises in due course, both rates and slabs will be reduced and it appears to be going in the right direction.
Arguably the most significant reform is the simplification of filing of returns. This has made the task easier for 95 per cent of all the assessees who were required to file 37 returns in a year. Now, those with a turnover of less than Rs 5 crore will be required to file a return on quarterly basis and one master return for the year. Rest of the assessees shall file monthly returns besides the master return for the year. This should come as a big relief to small and medium sized firms which were struggling to comply with earlier requirements.
The highest rate of 28 per cent is still levied on ACs, cement, aerated drinks, auto parts and demerit goods. There is a case for shifting ACs from this slab. Unlike cement, sanitary napkins which have been totally exempted from GST are not intermediate goods. Hence, the exemption will not break the GST chain. Manufacturers will get tax credit on tax that they pay for inputs. To that extent, it is a rational decision. But the temptation to exempt more and more goods from GST should be resisted. It will create a clutter and make way room for confusion in operating the system besides resulting in revenue loss to the exchequer. Instead, attempt should be made to bring into GST fold petroleum, electricity and real estate sectors. All of them now break the value chain and distort the input tax credit mechanism which is the core principle of GST. This will bring in greater transparency, higher efficiency and widen the tax base.
Finally, the Council has done the next best thing to do. It has put the onus of validating the sellers’ invoice and uploading the same on the buyer. This will ensure a sort of self-policing system without the requirement of intervention by government authorities. Invoice matching is the ultimatum that can ensure no leakages in GST system. But it had to be scrapped as the IT infrastructure could not take the load of filing country wide returns at the same time. Hence, it had to be scrapped; the Council must ensure this time there is no technical hitch because a lot is at stake of both states and central government.