From the Viewsroom

Keep it good and simple

Tina Edwin | Updated on May 10, 2018 Published on May 10, 2018

A cess will only distort the GST and defeat its objective

When the Goods and Services Tax was introduced on July 1, 2017, 16 cesses were abolished, to make the new tax structure cleaner. Prime Minister Narendra Modi even described the new tax as a good and simple tax in his midnight address in the Central Hall of Parliament ahead of the roll out of the tax. Good because it was to end the cascade effect of taxes that was commonplace and simple because of common single form and administration. The tax regime that was implemented from July 1 was anything but simple and the GST Council had to make multiple changes since then to make it compliance-friendly. The latest change being the much-demanded single return filing — but it will become a reality only in some months.

Given that, the proposal to introduce a cess for sugar, that was one of the 16 cesses abolished, will only defeat the primary objective of GST. And, worse bring back a tax on tax.

The argument for the sugar cess is that the sector is facing a crisis as the market price of sugar had fallen way below its production cost. A production subsidy could provide much relief but for that the government needs to find resources. But a production subsidy will provide only a band-aid like relief. A crisis returns to the sugar industry every few years given the cyclical nature of the sector. India also needs to ask if it needs to grow as much sugar as it does and whether cane should be cultivated in the water deficit areas of Maharashtra, Karnataka and Uttar Pradesh. Several States have rightly opposed the move to introduce sugar cess, forcing the Council to constitute a group of ministers to deliberate on the issue. Not only will cess introduce distortions in the tax structure but it will also lead to demands from other sectors where the political class have high stakes.

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Published on May 10, 2018
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