Food grain may be brought under GST, tax mechanism likely to be rejigged

Items such as food grain, which earlier attracted purchase tax under the value added tax (VAT) regime, may now be brought under the goods and services tax (GST) net. 

The officers’ committee on revenue augmentation is examining the feasibility of imposing GST on such products on the basis of reverse charge mechanism. Through this route, registered entities can pay GST on behalf of unregistered players.

“The idea was to go with the revenue neutrality principle in GST. However, now after so much of rate reduction in GST, there’s a situation where GST rate is lower than the rate in the pre-GST regime. There were items, like food grain, where purchase tax was paid by wholesale traders, but it is completely exempt now,” said a government official. He added that tax could be imposed on those items through RCM basis.

Meanwhile, the committee is looking at tweaking rates in the composition scheme and introducing reverse charge mechanism there to avoid evasion.

Composition scheme allows a flat tax rate and simplified return filing under GST.

“We can look at ways where composition tax rate can be rationalised, besides having a reverse charge mechanism to avoid evasion,” said another official.

Revenue collections fell to a 19-month low in September at Rs 91,916 crore, 2.67 per cent lower than the corresponding month last year and 6.4 per cent lower than Rs 98,202 crore in August. This prompted the government to constitute a committee of officers to discuss ways for revenue augmentation.

The 12-member panel, which has five officers from the Centre and states each, is also looking at issues such as systemic changes in GST to prevent misuse, measures for expansion of tax base, improved compliance monitoring and anti-evasion steps using better data analytics and administrative coordination.

Pratik Jain, partner, PwC India, said if reverse charge mechanism was widely applied, it would dilute the overall GST framework. “Food grain was exempt under VAT in most states, whereas purchase tax was applicable in Punjab and Haryana (which had to be paid by the purchasers).’’  

Purchase tax was subsumed under GST and it was clearly stated so, he pointed out.  “Therefore, I don’t see a rationale of having these products under GST, either under a normal mechanism of by way of reverse charge.” 

The government also wants to collate GST data with customs and income tax to identify evasion.