Editorial. Prioritise reforms in GST rates, procedures

Nearly seven years after its inception, there can be no denying the success of GST as a tax reform measure. Businesses have benefited from a more streamlined system after State imposts were dispensed with. Transparent e-filing processes appear to have stemmed leakages, boosting tax revenues. The gross GST mop-up in FY24 crossed the ₹20-lakh crore mark (₹20.18-lakh crore), up 11.5 per cent over the previous year. It is remarkable that GST collections have increased 71 per cent since FY19, notwithstanding the pandemic shock. Yet, when the GST Council meets today for the 53^rd time, the first under the new government, it needs to impart a push to crucial reforms – rationalising tax rates; bringing alcohol and fuel into GST’s ambit; and doing away with a punitive approach to mopping up taxes.

Besides rate rationalisation, a review of taxes on specific sectors is likely to figure as an agenda item. The latter includes a 28 per cent levy on online gaming; addressing inverted duty structure in sectors such as textiles, footwear, medicines and fertilizer, which stymies input tax credit claims; and surprisingly high rates of duty on items of common use such as cement and two-wheelers. The Council has, in the past, corrected genuine anomalies. However, it remains to be seen whether it makes major progress in crucial but contentious areas such as rate rationalisation and inclusion of new items, given electoral considerations and the realities of coalition politics.

The need to rationalise rates to promote ease of doing business is one of the main goals of GST. But it is apprehended as being inflationary. The move would mean a rate of 8 per cent instead of 5 per cent and 12 per cent, and 15 per cent instead of 12 per cent and 18 per cent. The 28 per cent rate can perhaps be reduced to 18 per cent. Much would depend on how the fitment committee (comprising central and State tax officials who have been meeting often of late) approaches the issue. The consensus-building skills of BJP’s State ministers can play a crucial role in achieving a breakthrough. They are part of the multi-party ‘group of ministers’ looking into rate rationalisation, led by Uttar Pradesh Finance Minister Suresh Khanna. GST marks the success of consensus building in a diverse polity; that spirit should be sustained.

It is easier to move quickly on procedural matters. GST tribunals must be set up soon to resolve disputes. Multiple reasons for delay in disbursing input tax credit should be addressed, including the cost borne by a buyer due to tax filing irregularities by a seller. These delays or denials could lead to costs being passed down the chain. The Central Board of Indirect Taxes and Customs has recently issued orders to restrain overzealous tax officials, but harassment remains a concern – more so with MSMEs. Powers of arrest under Section 132 of the GST Act have been a subject of controversy. Ultimately, it should not be forgotten that GST is meant to smoothen matters for business.