Changing contours of Goods and Services Tax regime
On Monday, Finance Minister Arun Jaitley hinted at a single standard rate of Goods Services Tax GST His statement comes close on the heels of the GST Council reducing the new indirect tax on 23 goods and services, a move dubbed by some as a New Year gift
On Monday, Finance Minister Arun Jaitley hinted at a single standard rate of Goods & Services Tax (GST). His statement comes close on the heels of the GST Council reducing the new indirect tax on 23 goods and services, a move dubbed by some as a New Year gift.
The reduced taxes which will come into effect from January 1, 2019, will make televisions, computer monitors and movie tickets cheaper. The list doesn’t end there though. But seven items among those that attract lesser tax now are from 28 per cent slab, the highest tax bracket. And there will be a revenue loss of Rs 5,500 crore annually because of the latest reduction taxes.
Nonetheless, the key factor is that 28 per cent tax bracket has just 30 items now. This slab had 225 items when GST was rolled out across the country on July 1, 2017. Interestingly, most of the products that are in this highest bracket now are sin goods (tobacco products) and luxury items like expensive cars. Of course, cement still attracts 28 per cent tax.
As cement is key ingredient for infrastructure and housing projects, demand for cut in the tax on this product is growing. But it is said that bringing down GST on cement from 28 per cent to 18 per cent will cost exchequer Rs 13,000 crore a year. Apart from cement, air conditioners and dishwashers are also in this slab.
If Centre shelves 28 per cent slab as hinted by Jaitley, tax on all these items will also come down. But that will depend on overall GST collections. According to official numbers, the average monthly tax collections, which stood at Rs 89,700 crore in the first year of the new indirect tax regime, increased to Rs 97,100 crore in the second year. The central government expects these collections to go up further.
But the idea of single standard rate is not new. GST was launched with five tax slabs – zero, five per cent, 12 per cent, 18 per cent and 28 per cent. Further, sin and luxury goods attract surcharge over and above the highest tax slab of 28 per cent. At the time of the roll-out itself, a committee headed by Arvind Subramanian, the then chief economic advisor, suggested a revenue neutral rate of 15-15.5 per cent as standard.
If curtains come down on 28 per cent slab, there will be two standard rates – 12 per cent and 18 per cent. If the government opts for single standard rate, it will have to merge these two slabs and fix a single standard rate of anywhere between 12 to 18 per cent. If that happens, there will be zero, five per cent and a single standard rate. That will obviously make GST simpler.
But the bottom line is that the central government is doing all this keeping 2019 General Elections in mind. Like demonetisation, GST has caused heartburn among people, thereby denting image of the BJP-led government. The moot question is whether Jaitley’s balm will help the saffron party in the hustings!