A gist of Congress’ ‘Theoretical’ GST–Economic Times

The Congress election manifesto has called for a ‘single, moderate, standard rate’ of goods and services tax (GST). It might have theoretical appeal, but can hardly be a practical proposition in a large diverse economy, and could be regressive. Revenue collections under GST have reportedly added up to Rs 1.06 lakh crore for March, a credible 15.6% higher than collections in the same period last year. Yet, GST remains a work-in-progress. The two middle rates of 12% and 18% probably could be compressed and lowered, and the peak rate of 28% axed.

The Congress manifesto promises to bring real estate, petroleum products, tobacco and liquor under the ambit of GST within two years, and adds that there would be a special rate of duty on demerit goods, which is unexceptionable. It does make perfect sense to extend GST to the entire real estate sector, and not limit it to under-construction housing, for tax efficiency and transparency. But the taxable event under GST is simply the supply of goods and services, and real estate is neither defined as a good nor a service in the GST Act, so a constitutional amendment is required, as in the case of alcohol. The manifesto makes no mention of subsuming electricity duty under GST. But it is essential to do so, to step up much-needed efficiency in power distribution, with set-offs available along the value chain for the tax levied. Over Rs 30,000 crore accrue to states annually on account of electricity duty, and distort incentives to arrest revenue leakage in distribution.

Some petroleum products like LPG are included in GST. But the main oil products are not, with inbuilt provision for cascading tax-on-tax across the value chain that nets over Rs 5 lakh crore revenue. The way ahead is to have GST that provides only limited set-offs for oil products.

This piece appeared as an editorial opinion in the print edition of The Economic Times.

via A gist of Congress’ ‘Theoretical’ GST

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