Fine-tuning GST – Business Line

The GST Council’s decision to reduce rates on 15 items from 28 per cent to 18 per cent makes economic sense, and therefore should not be put down to electoral considerations alone. The outgoing Chief Economic Advisor, Arvind Subramanian, for one, has held the view that the highest rate slab of 28 per cent should be done away with. In November last year, the GST Council decided to move 177 items out of the 28 per cent category. Last week’s decision to lower rates on items of middle class consumption such as white goods, paints and varnishes, etc., would leave only 35 items in the 28 per cent bracket. These include ACs, auto parts, cement, aerated drinks and demerit goods. While the reduced rates are likely to lift consumer sentiments by lowering prices as the poll season draws near, it will also discourage tax evasion. A further rationalisation of rates is called for; to this end, however, the Council should take the States on board. Opposition-ruled States such as Punjab and Kerala have said that they were not adequately consulted in last week’s meet. This is an unfortunate development. Decisions on GST so far have been marked by a remarkable faith — in contrast to the acrimony in the political space — in the federal consultative processes that have been put in place. Discord over the workings of the Council can harm the implementation of GST.

The Council seems to have hit upon the right way to reintroduce invoice matching, which was abandoned after the GST Network collapsed last year, unable to deal with the data uploads. Now, the buyer, rather than the portal itself, will validate the seller’s invoice by ‘locking’ it. Amending a wrong entry has also become easier, as a separate form will be made available for this purpose. The tax would be paid on the basis of the amended entry. This will come as a big relief for assessees who were forced to run from pillar to post trying to rectify an incorrect entry. While the new invoice matching norm will presumably take a few months to take effect, the GSTN cannot afford to fail yet again. Whether it can take the load of an entire country uploading invoices as the deadline draws near is a moot issue.

The Council needs to address issues such as locked up funds in IGST and the teething concerns in the e-way bill. It has rightly decided to focus on the concerns of small industries (and hopefully small, individual entrepreneurs) in its August meet. It is important to bring them into the tax net without punishing consequences. A simple but crucial reform is to ensure that GST forms can be filled in all Indian languages, and not just English. At a broader level, a buyer’s input tax credit should not be held up if his vendor has not paid his taxes. But, by and large, the GST process has gone past its initial glitches.

via Fine-tuning GST – Business Line

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