Taxing tweaks

The Goods & Services Tax, touted as the country’s biggest tax reform after Independence, has been subjected to a major overhaul in just four months after its euphoric roll-out, when all-powerful GST Council pulled out as many as 178 products and services from the top tax bracket of 28 per cent and pushed them into lower tax slabs.

This rejig initiated at the Council’s latest meeting at Guwahati last week, has left just 50 items in the top tax bracket. As Finance Minister Arun Jaitley pointed out after the review meeting in the Assamese capital, luxury and sin goods (read tobacco products) that attract cess over and above the top tax rate, form the bulk chunk of the list. But major anomalies still persist.

Cars and white goods, which have become a basic necessity for the most of Indians these days, continue to attract the highest tax rate. So is also cement, a basic ingredient for construction, at a time when the Modi government is pushing for ‘housing for all’ by 2022.

However, the latest tweak - though linked to Gujarat elections where traders and businessmen are not happy with GST as it has impacted their businesses severely - has brought much-needed relief to the consumers as tax burden on sweets, granite, restaurants, etc, has come down significantly.

But tweaking GST so many times within a span of four months certainly exposes the unpreparedness of the government machinery for the biggest tax reform in the country’s history. The Council comprising Union Finance Minister and state finance ministers increased cess on luxury cars, brought down taxes on several items during its review meetings in last four months, giving credence to the criticism of the Opposition and some experts that the Centre did not do its homework well before bringing in GST.

As if the frequent changes in tax rates are not enough, GST Network portal, the software backbone for the implementation of the new indirect tax regime, has not been functioning effectively, forcing trade bodies like CAIT (Confederation of All India Traders) to demand a CBI inquiry against Infosys Technologies, India’s software sector bellwether that was given the task of developing, updating and maintaining the massive IT ecosystem for GST. Infosys has denied the charges, but the feedback from the ground tells a different story.

In the run-up to the GST implementation, industry circles painted a rosy picture about the new indirect tax regime, saying it would push up GDP by at least two percentage points. But such expectations went awry. Instead of boosting the economy, GST created hurdles for growth as was evident from the first quarter GDP numbers and macroeconomic indicators from the subsequent months.

Some critics put the blame on the way the new tax regime has hurriedly been implemented and also on multiple tax slabs. Besides, compliance burden has increased manifold even on small traders as they are required to make multiple tax filings. It’s time the Central government takes a relook at the new tax regime and makes whatever changes required at one go instead of following a piecemeal approach. It should also reduce the number of tax slabs to two from current six.