Extending GST compensation period may push back rate rejig: CBIC chairman

In a Q&A, CBIC chairman Vivek Johri talks about if revenues are to reach the levels where compensation would perhaps no longer be an issue, then GST rate structure, exemptions too need to be reviewed

While a final call is to be taken on whether to extend the goods and services tax (GST) compensation period for the states beyond June this year, Central Board of Indirect Taxes & Customs (CBIC) Chairman Vivek Johri, in an interaction with Asit Ranjan Mishra and Arup Roychoudhury, says if revenues are to reach the levels where compensation would perhaps no longer be an issue, then not only the GST rate structure but exemptions too need to be reviewed. Edited excerpts:

The Union finance minister said in the Budget speech a lot of challenges in GST remained. Is it just the rate issue or there are other matters?

So primarily it is the rate issue, on which a group of ministers is working. And that is lin­k­ed to the challenge of providing compensati­on to the states. You’re aware that is coming to an end in June. So I’m just second-guessing what the minister cou­ld have in mind, and in my view, it would be the challenge of ensuring that we are able to generate enough reso­urces for the states and the Centre taken toge­ther. That I think is the overarching challenge with GST. Then there are issues linked to stri­king the right balance between enforcement and facilitation. There have been measures taken for both.

Is there any thinking about extending the GST compensation period beyond June?
 

Frankly, there has not been much discussion on that yet. At the 45th GST Council meeting, the various options that are available beyond June 2022 — taking into account the fact that there are loans to be repaid and how compensations cess revenue will get used for repaying loans — were discussed. But there wasn’t really too much discussion on extending the period of compensation.

But what exactly is the problem? If you have a GST compensation cess, you can extend it and then compensate the states with that. So why is that not an option on the table?

No, for two years, your cess revenues are already booked for repaying loans and you’ve already extended the cess by that period. If you want to extend it beyond that, it is a call the Council has to take. Of course, the Constitution and the legal provision also provide for compensation for five years. In my view, the more you postpone it, and the more you extend the period of compensation. Rate rationalisation and other things will be pushed from the foreground.

How is that?

Because you have the compensation available, discussion on whether you need to rationalise the rates, and remove exemptions and inversions — these will not be of high priority. It is because there is a sort of definite time period for which compensation was announced. There is this realisation now that you have to bring these issues to the table and sort them out.

But if you rationalise the rates, will revenues go up and states will get more?

That is one of the ways.

How exactly does that work?

Then you get into the specifics of (things). There are only two ways of augmenting revenues. One is to take administrative measures, and bring in legal changes to ensure better compliance, which you have already done quite a lot. And there has been a very significant improvement in compliance... But if you really want revenues to reach the levels where compensation would perhaps no longer be an issue, then you also have to review your rate structure and exemptions.

The long-term aim is a three-rate GST and correcting the inverted duty structure. On the other hand, you have cases of roll-back in textiles because of political pressure. So how do you tally that with the stated aims of the finance minister?

I think it is an iterative process. It requires discussion among the states, and between the Centre and the states. As long as the direction is clear at least that road map will be ready. So as and when the time is right, perhaps it will get rolled out. But I don’t think it can happen overnight.

On correcting the inverted duty structure, how much work remains both on Customs duties and GST rates?
 

On Customs, we have more or less completed it.