The Goods and Services Tax Council took a series of decisions on Saturday last week, which were all steps in the right direction. The most significant change was the pruning of GST rates for more than 100 mass-use items such as refrigerators, washing machines and small-screen television sets, perfumes, cosmetics, vacuum cleaners, and shavers. The Council also reduced rates for some items such as sanitary napkins from 12 per cent to nil and for some others such as e-books from 18 per cent to 12 per cent. It is commendable that as the monthly GST revenue flows are stabilising, just 35 items are in the 28 per cent category. The ideal situation would be to have fewer tax slabs and a low tax rate while improving the compliance.
The Council also simplified the tax filing for 93 per cent of the assessees by raising the annual turnover threshold under which businesses can file quarterly returns from Rs 15 million to Rs 50 million. Similarly, it also decided that those having an annual turnover of up to Rs 50 million and offering services up to 10 per cent of their turnover or Rs 500,000 would come under the composition scheme. At present, this option was available to only those who had up to Rs 15 million annual turnover. There were other procedural simplifications, too. For example, there will be a standard operating procedure for imposing less severe penalties for small errors in filling e-way bills. This should provide relief to truckers. The Council also decided to link the RFID on vehicles with the GST Network and the transport ministry has been instructed to put this system in place in the next six months. Another significant change was deferment of the reverse charge mechanism till September 2019. Under this mechanism, the buyer, and not the seller, will pay the GST.
These are sound decisions and the Council must be complimented for the overall direction to lower rates and ease compliance. The only problem, however, is the manner in which the rate cut decisions were pushed through. The GST Council has been cited as the best example of cooperative federalism and almost all decisions have traditionally been taken by consensus. The latest meeting was an exception in that respect. At least two state finance ministers expressed their strong displeasure that the decision making was not based on rules and accused the central government of rushing through with the decisions in its eagerness to offer election sops. This was unfortunate and avoidable. Conventionally, fresh demands for rate reduction are referred to the fitment committee, comprising state and Central government officials, who examine their revenue implications and then table them before the Council in the subsequent meeting. This norm appears to have been breached as tax cuts on several of the items were taken up for the first time and were included in the agenda at the last minute. If the GST Council has to work smoothly, the Central government should continue to work in close coordination with the states and come up with a clearly laid-out road map based on an acceptable rationale.