Suspense continues

So, it was a rather tame end to the much-awaited 47th GST Council meeting in Chandigarh, the first since the landmark Supreme Court verdict in the Mohit Minerals case, with no decision being taken on the contentious issue of extending compensation period to States. Considering that the period ends today, “no decision” on extension can mean that either the issue will be mulled over and decided upon later or that the Centre has decided to let it lapse. If the objective is to dwell on the issue, the Centre should consult the other stakeholders involved, which is industry, and the consumer, who ultimately has to defray the compensation payment through a cess.

GST revenue for both the Centre and States will move a little higher, thanks to the rate adjustments made on a slew of goods and services. The Council has accepted the proposal of the Group of Ministers (GoM) on rate rationalisation headed by Karnataka Chief Minister, BS Bommai, on the issue of inverted duty structure in some sectors and removing some goods and services from the exemption list. While expansion of the list of products and services under GST is good, it could be bad for consumer inflation which is currently at an 8-year high. For instance, the removal of exemption for branded and labelled food items is going to hurt consumers of these products. The unbranded and unlabelled items will continue to remain exempt thus protecting smaller manufacturers and consumers. Similarly, removing services such as hotel room rentals up to ₹1,000 per day, hospital room rents above ₹5,000 per day, services provided by regulators such as RBI, SEBI and IRDAI from the list of exemptions cannot be faulted. For these are not essential services and do not require concessional or nil rates of taxations. But some of the actions to address the inverted duty structures — such as increasing tax rates on printing ink, pumps, machines used in agri-commodity processing, work contracts in infrastructure projects such as building roads, bridges, metro and so on — will result in increasing the input cost for companies, which is likely to be passed on to consumers. Also, Finance Minister Nirmala Sitharaman has indicated that the GoM has been given few more months to revert on rationalising the tax rates on all the items under GST in order to move the revenue neutral rate back to 15.3 per cent from a little under 12 per cent currently. Hopefully, inflation will also soften by then because there is no option but to widen the GST base to increase revenues.

Paving the way for implementation of e-way bills for movement of gold and precious stones with a minimum threshold of ₹2 lakh will go a long way towards checking tax evasion in this sector. Similarly, allowing small companies which supply to e-commerce operators to operate under the composition scheme and easing their compliance burden will give a leg-up to e-commerce players. Asking the GSTN to implement IT reforms on its portals to verify the antecedents of the applicants and to do risk-based monitoring will bring down undue harassment of taxpayers and help check leakages more effectively.

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