Lower rates will lead to higher rate of compliance, says Delhi Finance Minister Manish Sisodia, a day after GST
cuts were made effective. He tells Dilasha Seth that the rate of 5 per cent on restaurants should have been extended to restaurants in five-star hotels, as the higher rate could encourage evasion and even lead to inspector raj in some cases. Edited excerpts:
Several big decisions were taken by the GST Council last week, which came into effect on Wednesday. What impact do you foresee?
I am not completely satisfied with the decisions taken by the Council. The benefit of reducing rates on restaurants to 5 per cent will benefit consumers across the country. But, this should have been extended to restaurants in five-star hotels as well. There should be one tax on all restaurants.
Could you explain it further?
The 18 per cent tax is on restaurants in hotels, which charge Rs 7,500 per night or more. The price changes with season and peak days. Some days of the month, the price will be Rs 5,000, while on other days it might go over Rs 7,500 per night. These are loose ends, which may lead to inspector raj. Some ministers backed the proposal of across-the-board 5 per cent tax, while others did not.
What impact on the revenue do you see from the reduction in rates of over 200 items by the Council?
The rate of compliance will improve. In fact, higher the rate, the more businesses try to evade taxes, and instead pay the tax inspector. We did this experiment in Delhi. As soon as we reduced the tax rate from 12.5 per cent to 5 per cent, our collections did not go down, but were rather up in some items. So, if you are getting the same revenue despite a 7.5 per cent reduction in tax rate, it suggests an improved rate of compliance.
Do you expect the items basket in the 28 per cent bracket shrinking further?
I am of the view that except sin goods such as tobacco, cigarette, revolver, etc, no other item should be taxed at 28 per cent. Why should items such as marble and other common-use items be taxed at 28 per cent?