More Centre-State deliberations needed with GST regime at a critical turning point
At its first physical meeting during the pandemic, the GST Council approved a flurry of changes. Concessional tax rates on vital COVID-19 equipment such as oxygen concentrators will lapse on September 30, while the lower rates on medicines were extended till December. Whatever the pace of vaccination, there are no signs the virus and its variants would be extinct on New Year’s Day, so the Council could have taken a more considerate view on pandemic essentials. Tax rate tweaks were okayed for an eclectic range of sectors with long-pending course correction on inverted duty structures plaguing several items, including footwear and textiles. The semblance of clarity brought in on a much-disputed issue — the definition of an intermediary — is welcome, for it was hurting several sectors, including IT services exports. Double taxation on the import of leased aircraft goes. Food delivery services players shall be made liable to collect and remit taxes instead of the restaurants. One awaits the fine print to assess the impact on consumers and smaller outlets. The plan to tax coconut oil as a personal care item at 18% for pack sizes below one litre and retain the 5% rate on edible oils for larger packs, has been held back for study, and will hopefully be shelved for good.
These pluses and minuses aside, two things stand out for Indian consumers — the Council’s firm dismissal of any shift of petroleum products to GST to lower the tax burden and the fact that GST cess on automobiles, tobacco and aerated drinks will now be levied till April 2026, not June 2022 as originally envisaged. While the Council may have discussed petro products only briefly to comply with a Kerala High Court order, consumers who need some relief on fuel prices — irrespective of who cuts taxes — may have held misplaced hopes. If the Government really wants a consumption rebound that may reignite private investments, the Centre and States must begin talks on rationalising fuel taxes. The Finance Minister has often expressed the worry: ‘What if we cut taxes and States do not’. Perhaps, a compact could be arrived at, so both give up a little revenue to spur spending. A similar dialogue is needed for an honest review of the GST regime’s progress and the way ahead. With just nine more months of assured compensation for States, they are worried about revenue streams falling off the cliff thereafter. Their pleas for an extension in the compensation period have met with stern diffidence and the argument that GST revenues are below expectations. Two ministerial groups have been tasked to augment revenues using technology and rate rationalisations. The Centre need not wait for their reports to hold a special Council meeting to discuss States’ compensation concerns, as had been promised. At this juncture, the Council should be a forum for empathetic contemplation, not fractious friction.