GST readjustments

The Goods and Services Tax (GST) is a work in progress. And by all indications, the GST Council will keep on tweaking GST rates on various commodities and fine-tuning the system for at least a year.

This is hardly surprising, considering the decades it took to erect the earlier indirect tax regime with its plethora of taxes. Each tax had come with teething troubles; traders took ages to make head or tail of a tax like VAT (value added tax). All those indirect taxes have now been subsumed within GST, which has been a little over four months in operation since July 1 this year.

Depending on revenue flow and feedback from each sector, there will be re-adjustments back and forth, that is for sure. The 23rd GST Council meet in Guwahati went for a comprehensive review and slashed rates on 210 items, the biggest reduction till date. Of these, the ones that made news were 178 mass use items in the highest 28% tax slab that were brought down to 18% slab. Only 50 items now remain in the 28% slab, mostly belonging to the luxury or ‘sin’ goods (like tobacco) categories.

Then there were two items in the 28% slab brought down to 12%, and they could not be more different — wet grinders and tanks /armoured fighting vehicles! This ought to give an idea of the sheer diversity of items that have to be taxed. Rates have also been cut from 18% to 12% and 5%, some from 12% to 5%, and still some others from 5% to zero. The aviation sector in particular has benefited, with GST rates on service side reduced, along with rates on aircraft engines, seats and tyres slashed from 28% to 5%.

Humbler new entrants to the 5% slab are peanut chikki, chutney powder, idli and dosa batter, fishing net and hooks and worn clothing. The GST Council has recommended exemptions on imported lifesaving medicine supplied free of cost by overseas supplier, scientific or technical instruments, prototype supplied to public funded research institutions, and software among other items.

It is noteworthy that existing exemption to services provided by fair price shops by way of sale of foodgrains, sugar, edible oil, kerosene under PDS — vis-a-vis their commissions — has been rationalized. Overall, a variety of fast moving consumer goods (FMCG) ranging from chocolate and condensed milk to shampoo and after-shave will now be cheaper after the latest tweaking of GST rates, while consumer durables will mostly stay in the highest 28% slab. Meanwhile restaurants have been left a bemused lot, with eating out to attract only 5% GST, while they will no longer be eligible for input tax credits.

Prior to the Guwahati meet, Revenue Secretary Hasmukh Adhia had commented that GST rate structure will continue to be rejigged whenever the need arises to reduce the burden on small and medium businesses, as well as for harmonisation of some items. While giving relief to a broad range of consumers, the GST Council has also responded to the traders lobby by simplifying tax compliance procedures and easing the penalties for late filing of returns.
This is expected to go some way in meeting the objections of traders, who have been pointing out the inordinate time and cost needed to fulfil GST compliance norms as well as technical glitches in accessing the GSTN portal and filing returns. It is a fact that even after four months of GST rollout, the GSTN portal does not load properly, thereby giving headaches to traders attempting to log on to file returns in GSTR-1, GSTR-2 and GSTR-3 forms by the 20th of every month.
Mercifully, the GST fitment committee and the group of Finance Ministers headed by Himanta Biswa Sarma have prevailed over the GST Council to ease the paperwork burden. Meanwhile, opposition parties are claiming victory that the Central government has been forced to rejig the GST structure with an eye to crucial assembly elections, like in Gujarat with its influential traders lobby. In turn, government circles have hinted that revenue collection in the highest 28% GST slab has been satisfactory, so there was some ground to go for rationalisation now.
While the charges of not doing its homework properly prior to demonetisation and GST rollout will be difficult for the government to shake off, at least things are moving so far as simplifying tax rates and filing norms are concerned. If tax rates are further brought down and the number of slabs reduced, it could serve in widening the tax base. It will also be interesting to see how the GST Council decides on the demands to include real estate and petroleum products under GST.
As for the Assam government, the pressure from small and marginal traders will likely increase in the coming days to raise the GST threshold limit from the present Rs 10 lakh to Rs 20 lakh. With their counterparts in other parts of the country already getting this relief, traders here will need to convince Dispur to absorb the resulting hit in revenues.