The decision to reduce goods and services tax (GST) rates on 178 daily consumable items is a positive. The GST Council’s call to include just 50 products in the highest tax slab at 28 per cent is a step towards moving to the two-rate structure in the medium term. Already, over 86 per cent goods and services have been brought under the twin slabs of 12 and 18 per cent.
But reduction in tax rates has come at a big cost for both states and central governments, which have had to sacrifice over Rs 20,000 crore in revenues this fiscal. A part of these losses may still be made up once the compliance increases, the GST matrix expands and there is volumes growth in both goods and services consumption. It is safe to say that not many finance ministers in the past have sacrificed so much revenue at one go even through general budgets.
In recent times, the biggest revenue sacrifice was made by then finance minister Pranab Mukherjee when he cut services tax rates by two per cent foregoing Rs 14,000 crore in 2008-09 as part of the economic stimulus package.
Some experts believe that the latest decisions on GST will give BJP enough ammunition to take the sting out of the Congress campaign in Gujarat aimed at weaning away traders from the ruling party. For the economy, the massive cut in GST rates would work as a booster dose at a time when growth rates have plummeted to 5.7 per cent in April-June 2017, the lowest in several quarters.
The GST Council’s decision to bring most air-conditioned and non-AC outlets into the five per cent bracket will help the hotels and hospitality businesses. Given that several restaurants did not pass on the full benefit of lower rates to consumers, tax input credit has been rightly denied to them. This measure, in fact, must serve as a warning for those trying to hoodwink the system. Retaining the five star hotels and their restaurants under 18 per cent bracket is more than justified.
The decision to change the basic design of GST along with easier compliance norms is a welcome step for the industry, service providers and consumers. In order to propel higher compliance and make life easier for individuals, small and medium enterprises, GST returns have been simplified and aligned with the larger objective of bringing more assesses under the unified tax regime. Easier deadlines and allowing businesses with a turnover up to Rs 1.5 crore to file quarterly returns is also significant. However, the Council will have to take a call to immediately curb malpractices unleashed by trade, industry and services providers, who are over-charging customers in the name of GST. Monitoring GST rollout from consumers’ point of view will have to be strengthened.