Recent decisions and statements by the Goods and Services Tax Council and its officials have shown that the government is looking to overhaul some basic aspects of the GST implementation.

The Council’s last meeting decided that taxpayers with a turnover of less than ₹1.5 crore can choose to file their returns on a quarterly basis instead of monthly, thereby greatly reducing their compliance burden. Now, Revenue Secretary and Secretary to the GST Council Hasmukh Adhia has said that they are considering tweaking the GST rate structure itself to better harmonise items in different categories.

Earlier, Finance Minister Arun Jaitley had also hinted at the possibility of fewer GST rates once the implementation process settles down.

What must be kept in mind here is that there is not much the GST Council can do in terms of rationalising the tax rates. The overwhelming majority of items taxable under GST are in tax brackets below 18 per cent, with many in the 5 per cent category.

Most of these cannot be altered because the items in these categories are commonly used and so must be taxed at a lower rate. This, however, puts a pressure on government revenue, necessitating the highest tax slab of 28 per cent to offset any revenue loss.

So, the only rates that can be changed are the 12 per cent and 18 per cent brackets. Jaitley said that there could be a possibility of collapsing these rates into a single bracket. But that is the extent of tweaking that is possible.

The really significant change the GST Council can implement, however, is what Adhia said — bringing coherence to the different categories of goods and services.

Confusing categorisation

Currently, similar items are taxed differently, leading to great confusion, and the possibility of future litigation. For example, the rate on ‘all goods containing added sugar or other sweetening matter or flavoured’ is 28 per cent, while the rate on sandesh and other sweetmeats is 5 per cent. There’s an overlap here, and it’s been sending confectionary companies into a tizzy.

Similarly, within the 28 per cent bracket, there are different categories for bathing soaps and for shampoos — both of which can be classified under the same broad heading. This needs to be cleaned up and simplified.

The other factor that a tweaking of the rates should keep in mind is what the government wants to incentivise and disincentivise. To place cigarettes and motor vehicles in the same category implies a certain messaging, as does classifying eating in an a/c restaurant (which almost all of them are, in the metros) as a ‘luxury’.

And in the days of Swachh Bharat, it can hardly be the government’s view that ceramic toilet fixtures (taxed at 28 per cent) are a luxury!

At a time when the government needs to encourage people to spend more on consumption, it cannot afford to discourage people from buying cars or eating out (or using the toilet). This, of course, comes up against the revenue neutrality argument.

But the government has to decide between boosting consumption and hence propping up another engine of growth, or simply shoring up government revenue and increasing public expenditure, the only piston that is firing at the moment.

In all of this, companies and industry bodies — so keen for a rate revision — should be careful what they wish for. The frequency of rule and rate changes so far has already kept companies on the back foot, unable to formulate any future strategies due to the uncertainty.

They must remember that asking the government to revise rates across the system will involve even more uncertainty and will force them to change their systems, pricing structures, marketing strategies, and supply chain dynamics yet again.