DNA Edit: New Year gift – GST is now beginning to settle down

The name of the game in democracy is to take a step, assess its popularity and implementation, and if found wanting, take one or even two steps back. The implementation of a national tax is no small matter. Never mind the shenanigans and sledging that is part and parcel of Indian political life, the GST remains a great step towards integrating the country.  Remember, the Unification of Germany was preceded by a customs union in early nineteenth century, which went a long way in breaking down protectionist barriers and led to the creation of a German nation. So, the decision of the Central government and the GST council on Saturday, to reduce price cuts on 23 items is welcome. The list includes all that is dear to the common man – movie tickets, third party motor insurance, smaller TV sets, power banks, flights for Haj and Mansarovar Yatra and branded frozen vegetables. They are all set to get cheaper. 

With the latest round of cuts, that become effective from January 1, the government has reduced rates on nearly 360 items since GST was introduced almost 18 months ago. By all indications, there is more to come. At the next meeting in January, the Union Finance Minister and the state finance ministers will look to pare down more items, including the ever important housing. There is a plan afoot to cut rates on under-construction houses, given its importance to the public. The revenue loss likely to accrue from this latest round of cuts is estimated somewhere in the region of Rs 5,500 crore. But when considered against the background of public relief it offers, it is frankly not much. Significantly, of the 23 goods and services whose rates have been slashed, the tax rate on seven items in the 28 per cent slab has been brought down. With this, only 23 goods are left in this high tax bracket. In other words, the 28 per cent slab is now restricted to only luxury and sin goods, apart from auto parts and cements.  

Obviously, given the high revenue implications, it would be difficult to touch them for the moment. Finance minister Arun Jaitley has a point when he says that rate rationalising in an ongoing process. When GST was introduced, India had one of the most irrational taxation rates anywhere. Most items were charged at 31 per cent so the government had transiently put them at 28 per cent, because an immediate reduction would have impacted social expenditures of the central and state governments. To that extent, the Prime Minister must be credited with keeping his promise of reducing rates as revenues have moved up and affordability has increased. So the common criticism against the government of keeping rates too high at the time of introducing GST is now beginning to wear thin - all in good time. To be sure, some states have objected to the rate cut because it impacts their own revenues. As can be expected, they have demanded that their revenue losses be compensated by the central government.