A couple of days after cuts in the goods and services tax (GST) rates, Finance Minister and GST Council Chairman Arun Jaitley on Monday raised hopes of further pruning the peak rate (28 per cent) and merging the 12 per cent and 18 per cent slabs. However, the single standard rate would take some time after GST revenues see a “significant” rise, he said, while criticising the Congress for “oppressing the country” with a high indirect tax rate of 31 per cent.
Experts said the standard rate would be crucial in determining if the move would help industry or not.
“The 28 per cent slab is now a dying slab,” Jaitley said.
Currently, 28 items, including luxury and sin goods, auto parts, dishwashers, air conditioners (ACs), and cement remain in the highest slab.
“With the GST transformation completed, we are close to completing the first set of rates of rationalisation, i.e. phasing out the 28 per cent slab except in luxury and sin goods,” he said on his Facebook post titled Eighteen Months of GST. Among the items under the 28 per cent rate, the ones used by the mass population are cement and auto parts. The rates on these items were not cut in the last meeting because of revenue implications of Rs 330 billion. While the cement cut would hit the exchequer by Rs 130 billion, auto parts would have a bearing of Rs 200 billion of revenues.
Jaitley said the next priority would be to transfer cement to a lower slab.
“All other building materials have been transferred from 28 per cent to 18 per cent and 12 per cent. The sun is setting on the 28 per cent slab,” he added.
A road map could be to work towards a single standard rate instead of two standard rates of 12 per cent and 18 per cent, he said.
“It could be a rate at some mid-point between the two. This will take some reasonable time when the tax rises significantly. The country should eventually have a GST which will have slabs of zero, 5 per cent, and a standard rate, with luxury and sin goods as an exception,” Jaitley said. Abhishek Jain, partner, EY India, said though the move would be a significant achievement in terms of GST simplification, the crux of the issue would be the standard rate.
The GST Council on Saturday had cut tax rates on 17 items and six services ranging from cinema tickets, third-party insurance premium of goods carrying vehicles, TV up to 32 inches, digital cameras, and frozen vegetables. It had further pruned the peak 28 per cent rate by taking away six items, leaving only 28 items in it. Dismissing the criticism of the GST as ill-informed and motivated, Jaitley said the new indirect tax regime had led to lower taxes, lower inflation and reduced evasion.
"The growth percentage in the years to come will increase," he said. Observing that the incidence of indirect taxes (excise duty, service tax and other levies) was 31 per cent on a large number of commodities before the GST roll-out, Jaitley said the GST Council had transiently put them in the 28 per cent slab and started the exercise of placing them in the lower tax bracket with increase in revenue. "The Congress legacy of indirect tax was a 31 per cent tax ... Those who oppressed India with a 31 per cent indirect tax and consistently belittled the GST must seriously introspect. Irresponsible politics and irresponsible economics is only a race to the bottom," Jaitley said, taking a dig at the opposition party.
On revenues, Jaitley said six states had achieved the revenue growth target, while seven were very near to achieving it. However, 18 states are still lagging as far as revenue collection targets are concerned. "States which do not achieve the target of 14 per cent are paid out of the compensation cess. The requirement of compensation cess in the second year is expected to be much lower than the first year," he said.
Jaitley said the average monthly GST collection in the first year of implementation was Rs 897 billion, which rose to Rs 971 billion in the current fiscal year. “Notwithstanding the substantial tax reduction, GST collection in the first six months of this year has shown a significant improvement as compared to the first year," he said. This increase in the tax collection has to be factored in, keeping in mind the significant rate reduction that has taken place in the GST. The reduction in monetary terms amounts to about Rs 800 billion per year.