Is fewer GST slabs possible in the future?

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Arguably, the transition to Goods and Services Tax (GST) is the most ambitious economic reform undertaken thus far. Last week, the GST Council — the highest decision-making body of the new regime — slash drastically the number of items in the 28 per cent tax category. But the council should not stop with these measures as a lot more has to be done to ease the process of doing business. Economists argue that as of now inconsistencies still persist as there is no justification why cement should be in the 28 per cent category, while concrete attracts 18 per cent rate. Steel, also used in construction, has been at 18 per cent, as also wood. But plywood has been at 28 per cent, while its substitute particle board is at 12 per cent.

Tax experts say the basic problem with GST is that it was implemented with too many rates, too many compliance requirements, and too many rules and regulations. Instead of a simple broad rate that applies to everyone, and the same set of rules for everyone, the current form of GST has probably introduced too many categories and sub categories.

When the idea of a GST was introduced, no one had intended that there would be multiple rates of tax other than the zero rate. So the only possible way to curtail discrepancies, among other things, is to develop the two middle rates of 12 per cent and 18 per cent as the ones that apply to almost all items.

The rates in the top bracket of 28 per cent were being discussed by the Narendra Modi-led government and the states for long. According to a report in the Times of India, the states had expected a shortfall of Rs 17,000 crore in July, but by August it came down to Rs 7,000 crore. Nearly Rs 8,000 crore were also collected from the compensation cess levied on automobiles, aerated drinks and tobacco. This surplus gave the final nudge to the ministers to cut rates in the highest slab.

Analysts are of the view that the idea of luxury goods needs a fresh look in view of changing market and socio-economic realities. Of course, goods and services in the 28 per cent category can encourage grey market activity, as critics have rightly pointed out. The need of the hour is to update taxes for the ease of doing business. Rather than rely on high rates to meet revenue targets, the emphasis should be on broadening the tax base at present.

Now, it is high time the GST Council should tackle anomalies on a war-footing, so that the potential of this reform measure which has taken almost two decades to put into place is not frittered away. At present, the climate of doubt must be nipped in the bud by addressing grievances and conducting advocacy exercises.

Nearly four months since its introduction, the new indirect tax threw up teething troubles and compliance issues, which the GST Council has addressed through several rounds of changes. To ease the hassles facing medium and small businesses in paying taxes and filing GST returns, it has tweaked various aspects of the new indirect tax regime to make it industry-friendly.

Finance minister Arun Jaitley has signalled more GST rate cuts and appealed to businesses to pass on the benefit of the recent reductions to consumers. The minister went on to add that those who were speaking of a single rate GST, have no understanding of the tariff structure. Tax rate on food items have to be nil, while items used by common man should be at the lowest rate of 5 per cent. Also, luxury goods and sin products and items that are hazardous to environment and health cannot be taxed at the same rate.

Read more at: http://www.timesnownews.com/business-economy/article/is-fewer-gst-slabs-possible-in-the-future/124958

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