Welcome reform

A single standard GST rate will be just what the doctor ordered

Finance Minister Arun Jaitley hinted on Monday the government could look at merging the 12 per cent and 18 per cent slabs in the goods and services tax (GST) structure, thereby signalling that the Centre and states were a step closer to the ideal of a single standard GST rate. This came after the GST Council’s decision on Saturday to reduce taxes on 23 items. The decision to push a number goods and services to a lower category of tax slabs means the peak rate of 28 per cent is on its way to being rendered almost irrelevant. Mr Jaitley said as much by terming it as a “dying slab”, though the decision to keep intermediate goods such as cement and automobile parts in the top tax bracket defied logic. It is hoped the finance minister will walk the talk on giving priority to rationalising the rates on cement. The government should also reconsider overpopulating the 5 per cent tax slab as the Council has brought a large number of items from the 28 per cent and 18 per cent slabs directly to the 5 per cent slab. 
 

Overall, however, the decision to simplify the tax structures, which will come into effect from January 1, is commendable, considering that 18 states have been lagging behind their revenue collection targets. At the central level, the average monthly GST collections this financial year have been better than in the last financial year, yet they are nowhere near what the Centre expected when the annual Budget was presented in February. In the fiscal year so far, only in two months have the GST collections crossed the Rs 1-trillion mark — in April and October. Collections in the first eight months of 2018-19 now stand at Rs 7.76 trillion, just about 58 per cent of the annual target. Hopefully, revenues will pick up after lower duties result in more sales as producers of goods and services benefitting from the lower rates are able to reduce prices. Another positive development is the move to improve the administration of the GST. One key change in this regard is the in-principle approval the Council has given for creating a centralised appellate authority for advance ruling (AAAR). Such a body will be crucial in dealing with cases when two or more state appellate advance ruling authorities provide conflicting decisions on the same issue. Creating this body will obviously require amendments to the GST-related Acts. Another issue that is likely to cheer the small service providers is that the GST Council and its sub-committees are working on extending the composition scheme to service providers. Under the composition scheme, which, as of now, can only be availed by traders, manufacturers and restaurants, businesses with an annual turnover of up to Rs 10 million can opt out of the GST structure and instead pay reduced taxes ranging between 1 and 5 per cent. 

For businesses still coping with compliance niggles, a single, fungible e-cash ledger has been proposed to replace the present system in which credits available under the Central GST cannot be set off against state GST dues. Another step in the right direction is simplification of the tax return-filing mechanism. It has long been clear that traders need a simpler filing system, faster refunds and other mechanisms to ease their cash flows and the steps will go a long way to iron out flaws in the GST architecture.