In a belated but welcome effort, the Centre is pushing for lower rates of GST for most goods and services, while restricting the 28 per cent slab to ‘sin’ goods. The Finance Minister’s assurance that cement will be removed from the 28 per cent bracket will act as a shot-in-the-arm for the construction industry and the affordable housing programme. In an effort to shore up revenue collections in the transition to GST, a large number of goods and services were over-taxed. In the case of services, this amounted to an increase over the pre-GST levy of 15 per cent. Hence, the move to arrive at an intermediate rate between 12 per cent and 18 per cent makes sense for businesses and consumers. With taxes having been lowered or scrapped on over 200 items since last November or so, it would seem that the GST Council has been responsive to representations from stakeholders. However, it needs to be transparent about how it takes such decisions. The Council should frame a policy governing changes in rates, so that it is not seen as susceptible to pressure groups. This would deny bonafide businesses an ambience of certainty and transparency. That said, the Council members, both the Centre and the States, should be willing to lower rates. A short-term revenue hit will be offset by gains from improved business activity. The shortfall in GST collections, and in the devolution of IGST proceeds to the States, is best addressed by plugging the gaps in the processes.
The biggest gap remains the lack of a software solution to ‘invoice matching’, as a result of which there is no system of verification for tax credits claimed under the form GSTR 3B. It had been promised in May that a single monthly return facility would be made available in another six months, but that seems to have been deferred to April or beyond. As a result, the tax authorities remain suspicious that too much input tax credit is being claimed. Businesses are harassed as a result, which is an ironic consequence for a measure that was introduced to ease the conduct of business. While claiming input tax credit has become less cumbersome for exporters, delays persist. Compliance costs for MSMEs have been falling, but slowly. The turnover limit for allowing quarterly returns should be relaxed. It does not help the vast number of MSMEs that GST returns have to be done in English.
Meanwhile, the States’ complaint that IGST proceeds are not coming their way has become a cause for friction, with some even threatening that they will go back to imposing octroi to make up their shortfall. GST is too major a reform to be played around with in this manner. It stands to lift the fortunes of consumers, producers and governments. The latter group should stay the course, as it has done admirably so far.
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