Almost two and a half years after its rollout, the goods and services tax (GST) regime remains very much a work-in-progress, notwithstanding the uptick in revenues last month. Meanwhile, Finance Commission chairman N K Singh, in his recent L K Jha memorial lecture, has called upon the GST Council to revisit its tax design and decision making: the states have complained to the commission of curtailed fiscal autonomy.
Singh’s suggestion for coordination between the two constitutional bodies, the Finance Commission and the GST Council, makes sense. But whether the NITI Aayog should also serve as the commission’s permanent secretariat is open to question. Aseparate body on the lines of the Congressional Budget Office in the US might be more appropriate.
There is a strong case to overhaul GST, both rates and structure. Make coverage comprehensive: petro fuels, electricity, real estate, tobacco and alcohol should all be brought under GST. GST on energy prices would bring in transparency and lead to lower power theft.
Have a central rate for the vast majority of goods and services, along with a merit rate and a demerit rate. Institute reverse charge for all purchases by big buyers from small suppliers, so that big buyers do not abandon small suppliers for having to forgo input tax credit (ITC). Expanding the scope of reverse charge would extend the audit trail and spare small producers both paperwork and working capital.
Scrap non-ITC arrangements such as for restaurants, which have a tax rate of 5% with no ITC. This results in restaurant chains accumulating huge tax credits on their input purchases they cannot claim. Tax cascades on tax raises the cost of servings for the consumer. The point is to simplify the tax administration and maximise its coverage.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
via A GST Revamp to Make it More Effective