No need to distort the GST package – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/no-need-to-distort-the-gst-package/articleshow/93012976.cms

Synopsis

GST allows manufacturers to claim credit for the taxes paid on inputs and creates audit trails in the income and production chain. Exemptions break this GST chain.

There has been loud opposition to the levy of the goods and services tax (GST) on pre-packaged and unbranded food items that would purportedly hurt consumers. Removing both exemptions and artificial distinctions in the same product is rational. GST allows manufacturers to claim credit for the taxes paid on inputs and creates audit trails in the income and production chain. Exemptions break this GST chain. Essential food items could also be zero-rated, like exports, to keep the chain unbroken. This would soften the blow on consumers now bearing the brunt of inflation. Zero-rating of essential food items would mean that the government will forgo revenues in the short term, but then the tax base will widen.

A nominal levy can be charged on some essential items when inflation is tamed. The guiding principle must be to tax transactions based on underlying products and services, not branding or price points. Reportedly, the call to impose 5% tax on pre-packaged and non-branded items was taken after rampant misuse of this exemption by many reputed manufacturers and brand owners. The course correction to levy GST uniformly on all packaged commodities is rational. Taxing products sharing a common HSN (harmonised system of nomenclature) code at the same rate makes eminent sense.

But the tweaks announced by GoI, perhaps yielding to the traders’ lobby, will distort the tax system. Take pre-packed flour, pulses or cereals weighing up to 25 kg and meant for retail sale to the consumer. They will attract GST. But single packages of the same items weighing above 25 kg will be exempt from GST. The levy will also be waived when these essential items are sold loosely. Distortions such as these defeat the goal of India moving towards a simple GST.

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