Prime Minister Narendra Modi’s indication that only a handful of articles will remain in the top GST bracket should bring cheer to the people. The items that will continue to attract 28 per cent tax are either demerit goods or items of luxury such as big cars and aircraft meant for the uber rich. Recall that the highest slab was originally envisaged only for a few luxury and sin products, but several other items were included in it.
For the government, the latest reduction is part of an attempt to further simplify the Goods and Services Tax. But many would view it as a pre-poll sop for the middle class. With the Congress winning in three of the five states that went to assembly polls recently, and then announcing farm loan waivers after immediately coming to power, the BJP could not be seen lagging behind.
However, to be fair, since GST was rolled out on July 1 last year, the GST Council has rationalised rates four times — October 6, November 10, January 18 and July 21. The rationalisation exercise in November had left only 50 items in the top slab, thus leaving the national exchequer poorer by an estimated Rs 20,000 crore.
If the latest round of exclusion is carried out — the PM’s move needs to be approved by the Council — the loss of revenue from cement alone would be about Rs 3,500 crore. Perhaps, the exchequer will be able to contain the revenue loss.
The PM has justified the rate cut by citing the increase in the number of registered enterprises — from 6.6 million before GST to 12 million now. Moreover, the Insolvency and Bankruptcy Code has enabled the government to recover Rs 3 lakh crore in a span of one and a half years from big corporates who would have otherwise escaped from repaying bank loans by citing losses.
One also needs to bear in mind that lower taxes normally translate to a higher degree of compliance by taxpayers. The revised slab comes at a time when the rupee is appreciating against the dollar, fuel prices are cheap and stock markets are upbeat.
Even then, rate cuts alone may not be enough because businesses are still finding the process of return filing and claiming input-tax credit refunds complex and tedious. Looking at the larger picture, many feel that the rate cut in cement would offer a much-needed boost to the housing, infrastructure and the construction industry as well as have positive impact on employment generation.
In its July meeting, the GST Council had rationalised the 28 per cent slab by cutting rates on paints and varnishes. However, the government should also ensure that FMCGS pass on the benefits of rate cuts to consumers. The National Anti-profiteering Authority received more than 300 complaints on FMCGs, overcharging on items such as groceries, shampoo, cosmetics, hair oil for which GST was reduced from 28 per cent to 18 per cent.
After all, if voter is the king, s/he should be able to feel special at the end of the month.
