Jaitley Hints at Rationalising GST Rates as Revenues Surge
A STABILISED TAX REGIME A YEAR AFTER ROLLOUT
June collections at Rs 95,610 crore, well above FY18 monthly average of Rs 89,885 crore
India may soon be looking at rationalising goods and services tax (GST) rates as the year-old indirect tax regime stabilises, finance minister Arun Jaitley said, even as he dismissed the idea of a single rate that Congress president Rahul Gandhi has called for. Jaitley added that GST has helped expand the tax base, including that of direct taxes. India implemented GST on July 1 last year.
“We will be busy in the process of shifting a large number of items from (the top rate of) 28% to the lower rate,” said Jaitley, who was addressing an event to mark one year of GST on Sunday via video link. “The weighted average of the total taxation basket has significantly come down and therefore we are in the process of rationalising the rates itself.”
Data released on Sunday showed GST collections at ?95,610 crore in June, higher than Rs 94,016 crore in May and well above the monthly average of ?89,885 crore in the last financial year. Jaitley is on medical leave following a kidney transplant.
Despite challenges to the global economy and because of demonetisation and the anti-black money crackdown, the GST impact was not fully visible on revenues last year, he said. He pointed out that GST had not just impacted indirect tax collections but those of direct taxes as well.“We had a direct tax increase of 18%,” Jaitley said. First-quarter “advance tax payments indicate that the personal income tax collection—the gross figure—has increased by 44% and corporate tax by 17%,” he said.
‘Best is Yet to Come’
“GST not only impacts indirect taxation, but those who have to disclose their turnover now for the purpose of GST and necessarily to pay the direct taxes, so this net significant increase in the direct tax is substantially attributable this year to the effective enforcement of GST,” Jaitley said.Jaitley said the GST rollout had not been disruptive and it had settled in smoothly. The minister exuded confidence that GST in the long and medium term will have significant impact on India’s GDP growth and ease of doing business besides helping to expand trade and business and promoting a more honest and transparent economic environment.“I’m confident that the best of GST in terms of its contribution to society is yet to come,” he said.
The minister said the GST Council—the apex decision-making body for the tax with representation from the Centre and the states—had been a unique experiment in cooperative federalism. All its decisions were taken by consensus and it never had to vote. Jaitley heads the council as Union finance minister.Separately, Jaitley dismissed the idea of single GST slab being advocated by Gandhi, saying it wouldn’t work as the situation in India was different from other countries.“Rahul Gandhi has been advocating a single slab GST for India. It is a flawed idea,” he said in ‘The GST Experience,’ a piece he posted online.
“A single-slab GST can function only in those countries where the entire population has a similar and a higher level of paying capacity.”Being fascinated by the Singapore model was understandable but the population profile of India was very different. “Singapore can charge 7% GST on food and 7% on luxury goods. Will that model work for India?” he said.Since GST is a regressive tax, the poor have to be given substantial relief, he said, stressing that most food items, agricultural products and goods used by the common man have to be tax exempt while some others have to be taxed at a nominal rate.
“The others could be taxed higher. Eventually, as the collections improve, many more items from the 28% category can possibly come down. Only sin products and luxury goods can remain there,” he said.Depending on collections rising, there would also be scope to merge some of the mid-category slabs, the minister said.He pointed out that key areas for future action will include further simplifying and rationalising the rate structure and bringing more products under GST.
“I am confident that once revenue stabilises and GST settles, the GST Council will look into these carefully and act judiciously,” he said. On the inclusion of petroleum products under GST, Jaitley said that the previous Congress-led UPA government had in any case proposed keeping petroleum products permanently outside GST. His government has left the option open.“We brought them back into the constitution as levyable to GST and can gradually impose the GST when the GST Council so decides,” he said, adding that when the states are more comfortable with the revenue position, it would be the ideal time to seek a consensus on the matter.
The previous government would have shut the door on this, even though it was now seeking a single rate and fuels under the GST ambit.“But what was the UPA’s own track record on petroleum products in the GST? The constitution amendment proposed by the UPA permanently kept all petroleum products outside the GST,” he said. “When I speak to the Congress FMs (finance ministers) in the states, they don’t seem to be ready for it (brining petroleum products under GST).” He further said that when GST was to be launched on July 1last year, the government had been advised by the Congress to postpone it.
“A reluctant government can never take reformist decisions. We went ahead. At the initial stage, we fixed the first set of rates. A large number of requests started coming from trades, industry and, therefore, we started rationalising the rates,” he wrote, adding that the country witnessed “the smoothest switchovers in one of the largest tax reforms in the country. All the check-posts disappeared overnight. The system of input tax credit ensures that disclosures are made.” Earlier, speaking at the GST commemorative event, acting finance minister Piyush Goyal said GST had unified the country.
He said it will allow companies run their businesses honestly. One of the biggest gains of GST is that there are no hidden taxes and consumers know exactly how much they are paying.
The Economic Times, New Delhi, 02nd July 2018