India’s major indirect tax reform the goods and services tax (GST) that came into effect on July 1, 2017 got a shot in the arm when the GST Council removed seven items from the highest 28 per cent slab, besides pruning rates on 23 goods and services of common use to benefit consumers and spur consumption. This is in consonance with the aim to ultimately move to a structure where all are not taxed beyond the standard rate of 18 per cent, except a few luxury goods.
The rates of seven items that were slashed from the peak 28 to 18 per cent include certain vehicle parts used in agriculture, monitors and TVs upto 32 inches, retreaded tyres, power banks, digital cameras, videogame consoles and parts and accessories of the carriages for disabled persons from 28 to 5 per cent. For the benefit of the multi-million rupee entertainment industry and ordinary cine-goers, the GST rate on cinema tickets above hundred rupees was cut from 28 to 18 per cent and on tickets upto hundred rupees from 18 to 12 per cent.
With this significant cuts in the latest round, 97.7 per cent of the 1,211 items under the GST net now fall in the tax slab of 18 per cent and below among the five broad categories of zero, 5, 12 18 and 28 per cent. Though rate cuts for construction material like cement and automobiles in the 28 per cent slab were discussed, given the high revenue implications members resolved to defer it for the time being. Now, in all only 28 items are left in the highest 28 per cent slab. Incidentally this was the fifth round of rate rationalization since the advent of the GST ago and has come just after the Prime Minister Narendra Modi hinted at a public event a few days ahead of the GST Council meeting that the government sought to ensure 99 per cent of items were taxed at 18 percent or below.
As the successive rounds of rate cuts have generated apprehensions among the States that their share of the tax pie would be reduced particularly when there is shortfall in revenue yields in recent months, the GST Council discussed the issue threadbare. It endorsed the formation of a seven-member Committee of a Group of Ministers (GoM) to study the revenue trend covering the structural patterns hitting the revenue collections in some States. Experts from technical bodies such as the National Institute of Public Finance and Policy and from the Centre and States would assist the GoM.
The Council also resolved to refer several key items to the relevant committees which include the extension of the composition scheme to small service providers from its current applicability to only traders and manufacturers, study of the tax rates on lotteries and on residential properties and also review of the threshold limit of exemption from GST.
The GST Council has decided to create a Centralized Advance Ruling Authority to surmount the piquant situation where conflicting decisions by two or more State Appellate Advance Ruling Authorities create confusion in interpretation. Industry welcomed this as it would help clear ambiguity and assuage concerns of taxpayers operating pan-India in cases of different ruling in different States. Other noteworthy decisions that have a beneficial bearing on the ease of doing business in India initiated at the Council meeting cover decisions like creating common ledger for all tax and allied payments, simplification of process for exporters and importers and extension of the due date for filing of annual returns and extension of timelines for claiming input credit.
To sum up, by deft adjustment of peak rates and incremental reform process without compromising the maintenance of fiscal balance, the GST Council’s decisions have not come a day too soon to move a step closer to a uniform levy of GST on goods and services across the nation for the enduring benefits of all stakeholders in the real sectors of the economy.
Script: G. Srinivasan, Senior Economic Journalist