No piecemeal approach

Three groups of ministers (GoMs) under the Goods and Services Tax (GST) Council met recently and reportedly decided to recommend various rate tweaks, exemptions for lower health insurance covers, and a merger of the “compensation cess” with the highest tax slab at a future date. The GoM on rate rationalisation (GoM-RR), which has the crucial mandate for a comprehensive restructuring of the GST slabs with the idea to reduce their number and appropriately revise the tax’s base, seems in no haste to go for an overhaul of the tax structure, even though it has a tight November-end deadline to firm up its views.

This is despite the fact that the tax suffers from multiple infirmities and blemishes on its structural integrity. Instead, the GoM-RR in its latest meeting decided to propose changes in the tax rates for over 100 items, with the apparent objective of imposing higher differential taxes on a few high-value items like expensive wristwatches and shoes.

What is required at this juncture is a systematic, objective study of the GST’s revenue performance over the last more than seven years of its existence, devoid of the effect of the external shock (pandemic). GST revenues must be pitted against the mop-up from the comparable pre-GST taxes, and constructive suggestions made on how the tax’s revenue productivity could be improved.

According to some estimates, minus the cess proceeds, the collections are still stagnating at around 5.6% of GDP, much lower than in the pre-GST period. However, these estimates need to be borne out. Also, while one of the chief merits of GST is supposedly the stability of the regime, GST rates and base (exemptions) have seen more frequent changes, than even the excise/service tax and state value-added tax regimes that it had replaced.

Source : https://www.financialexpress.com/opinion/no-piecemeal-approach/3648064/