Finance minister Arun Jaitley should go ahead and rationalise the GST rates, prune the slabs and rework the levies on specific products and services where serious lacunae are glaringly visible. Two major slabs of 12 and 18 per cent should be considered for merger in his next union budget that’s in all likelihood to be presented by December this year.
Given that the budget exercise would begin immediately after the monsoon session of Parliament as part of a larger exercise to advance the financial year to January 1, GST rates overhaul could be considered immediately. Possible impact of the merger on revenue inflows for both states and Union government will have to be factored before a mean rate is finalised to replace the 12 and 18 per cent imposts.
If one recalls an extensive exercise carried out by finance officials during UPA-II government, 15 per cent was considered revenue neutral and would cover over 84 per cent goods and services. Though this would mean some lose and others win, it would make life much easier for companies, retailers and consumers alike.
While it was okay to begin with multiple rates during the roll out on July 1, quickly moving further with a definitive game plan and road map will go a long way in helping in ease of doing business.
Ease of doing business coupled with cut in transaction costs will have to be achieved, if GST is to deliver an expansion in the economy and add the much anticipated additional 4 per cent to GDP growth in the short term. By December, anyway businesses would have settled down from the teething troubles post-GST rollout a month back.
Furthering taxation reforms in the next budget should be high if businesses and consumers were to positively prosper under the new regime. Jaitley is right when he says, both BMW and hawai chappals cannot attract the same GST rates. While BMW users must continue to attract sin tax at 28 per cent, there’s no harm in making hawai chappals tax free as a welfare measure. Similarly, if low-end apparel costing below Rs 1,000 must be considered for zero tax rather than allowing for bill splitting by the retailers.
Only limiting factor for finance minister Jaitley in merging the two key GST rates is the inflationary impact. Rolling out measures to rein-in high inflation should precede the possible 15 per cent GST on most goods and services. For the time being, retaining low-end 5 per cent and 28 per cent luxury tax seems inevitable like in most countries that have rolled out GST.
Like Jaitley, in May this year, revenue secretary Hashmukh Adhia in an interview with this newspaper had talked about the huge scope for rationalisation in GST rates going forward. Central Board of Excise and Customs chairperson Vanaja Sarna had hinted that GST Council could consider rates rationalisation based on justification, logic, reasoning and impact on a particular sector.
Barring about 150-odd services, most have just been bracketed under 18 per cent GST. Bringing all the services under one mean rate of 15 per cent, if such an exercise hasn’t already begun in the finance ministry. Rationalisation and ending separate three per cent rate on gold, silver and diamonds must be attempted while complete withdrawal of 0.3 per cent GST on rough diamonds is a plausible option. If levy on biscuits was brought down to 18 per cent from an earlier impost of 22 –23 per cent, why not bring rough diamonds to zero rate? Further, bringing all tobacco, petroleum and liquor products with in the ambit of GST without exemptions or exceptions should be considered.
As in the past, forging a national consensus on rates, bracketing products and services under different slabs should be paramount to expanding the economic growth processes. Jaitley’s task for the next five months seems cut out.