Next phase for GST

Appellate tribunal will improve business environment

The Goods and Services Tax (GST) Council in its 49th meeting took an important step towards establishing the much-awaited GST Appellate Tribunal, among other decisions. Since some states had different views, Union Finance Minister Nirmala Sitharaman later elaborated that the report submitted by the Group of Ministers (GoM) — chaired by Deputy Chief Minister of Haryana Dushyant Chautala — on this matter was accepted with some modification. The Union government expects it to be finalised by March 1, so that it can be included in the Finance Bill. Some states are reported to be in favour of a bigger tribunal with two technical members each from both the Centre and the states. As reports suggest, there will be a Principal Bench, which will look into inter-state disputes, while Benches in the states will look into disputes within the state. More clarity will emerge once the proposal is approved.

The tribunal has been delayed for long, and its establishment should help in resolving disputes smoothly and improve the business environment. Once the differences in the Council are settled, state governments would do well to establish an adequate number of tribunals in their jurisdictions, particularly in business hubs. Among other important decisions, compensation dues to the states were cleared. The finance minister in this context noted that the pending balance of compensation would be released. Pending dues to the states that have now provided the revenue figures vetted by the relevant authority were given the go-ahead. This was another significant landmark in the GST system. The states were promised to be compensated for revenue loss with a revenue growth assumption of 14 per cent per annum for the first five years, which ended last year. Having received all compensation dues, the states have to ensure that they mobilise enough revenue to fill the gap. According to the latest report on the state finances by the Reserve Bank of India, states such as Puducherry, Punjab, Himachal Pradesh, and Delhi are likely to be most adversely affected because GST compensation, on average, exceeded 10 per cent of their tax revenue.
 

Besides, the meeting accepted the GoM’s recommendation on taxing pan masala. It also reduced duty on liquid jaggery to nil from 18 per cent if sold loose. The pre-packed and labelled version will attract a tax of 5 per cent. It further reduced tax on pencil sharpeners and some tracking devices. It was also later announced that the suggestions related to GST on cement had not reached the fitment committee. Some commentators have suggested that GST on cement be reduced from the highest rate of 28 per cent. This would help lower the cost of construction and have a multiplier effect. There are also suggestions for rationalising taxes on certain kinds of vehicles.At a broader level, the tinkering with rates at this stage and considering such demand from industry and the public at large also reflect the weakness of the GST system. This is largely because of the multiplicity of rates. It is thus worth reiterating that the Council should urgently consider broad rationalisation of rates and slabs. This would not only help make the GST system simpler but also improve revenue collection, which is necessary for a number of states because they are no longer compensated for shortfalls in revenue. A simpler GST system will reduce disputes.