Prime Minister Narendra Modi said on Tuesday the government would make efforts to bring 99 per cent of items under the goods and services tax (GST) into the 18 per cent slab or lower. The next GST Council meeting is four days away.
“Only 0.5 to 1 per cent of the items — luxury goods such as aircraft, cigarettes, alcohol and SUVs — will be taxed at 28 per cent,” Modi said.
Currently, 39 items, or about 3 per cent, of about 1,280 items that draw the GST attract a levy of 28 per cent. If Modi’s announcement turns into reality, only up to 13 items would remain in the 28 per cent bracket, pushing goods such as two-wheelers, cars, cement, and computer screens into the 18 per cent slab.
However, this announcement has drawn severe criticism from finance ministers (FM) of Opposition-ruled states. Manpreet Badal, finance minister of Punjab, said that a suo motu announcement by the PM without the approval of the GST Council, a constitutional body, was unwarranted. “The PM should not make unilateral announcements like this… since even the agenda for the coming GST Council meeting is not yet finalised,” he said.
Badal criticised the Union government’s frequent changes to GST law.
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“This is a badly designed GST, difficult to fix. The Congress viewpoint is that if we come to power, we will bring in GST 2.0,” he added.
Experts have voiced a concern that rate cuts might not be the only solution to make the GST seamless. “Taxing nearly all items at less than or equal to 18 per cent will be challenging. Businesses also want simplicity of return filing and ease in claiming input-tax credit refunds,” said Archit Gupta, founder and chief executive officer of ClearTax.
M S Mani, partner, Deloitte India, pointed out the reduction in revenue after cutting rates remained a concern.
“The move would surely herald the movement to fewer rates in future, but then there might be headwinds in revenue collections. The overall collections would reduce in the short term, but lead to tax rationalisation on the one hand and fewer disputes on the other,” he said.
Kerala Finance Minister Thomas Isaac also voiced these concerns on Monday.
Badal said the Union government should be patient and wait for issues arising out of GST implementation to stabilise.
Modi, however, said the exact opposite.
“The GST as a system has stabilised and as a result, we are reaching a situation where 99 per cent of the items can be brought within the tax bracket of up to 18 per cent,” he said at the Mumbai event.
He added the number of registered enterprises rose from 6.6 million before GST roll-out to 12 million now, justifying the rate cut.
The November 2017 meeting of the GST Council — which preceded Gujarat assembly elections — had reduced the tax rate on items in the top slab. Eight months later, the July 2018 meeting chaired by the interim FM Piyush Goyalhad too generously pruned the 28 per cent slab.
Union Finance Minister Arun Jaitley had lauded the move, back then.
“The GST Council within a record period of thirteen months has almost phased out the 28 percent category items remaining in this category are only luxury items or sin goods. It is only a matter of time that the final obituary of the ‘Congress Legacy Tax’ is written,” he had written in his blog.