The rollout of the Goods and Services Tax (GST) seems destined to be delayed again with the Centre and states squabbling over the sharing of tax revenues. It is heartening that the chairman of the Central Board of Excise and Customs has assured the Centre and states that their collection at Rs 8 lakh crore in taxes would be safeguarded when the GST regime sets in. The GST is now likely to be implemented only in September next year, missing the April deadline as it cannot be presented to Parliament in this Winter Session, which will conclude on December 16. This is a pity as it is one of the biggest indirect tax reforms since the opening of the economy in 1991-92.
Hopefully, the meeting of the GST Council on Sunday and Monday will see some positive outcome on bridging the gap between these two differing entities. States are naturally worried about their share of tax collection and the situation has been worsened by the upheaval caused by the demonetisation exercise, which is expected to shave of two per cent from GDP according to some reports. There are others who feel this is alarmist and that there could be problems only for about two quarters till the economy absorbs the shock of demonetisation. There is already a fall in demand, which in turn is leading to cutback in manufacturing. The interest of the consumer is also at stake particularly in case of the service tax. Industry for instance would like the slabs to be lowered. The slabs that have been proposed presently are 5, 12, 18 and 28 and the industry would like to have 18 as the highest and preferably just one slab.
However, finance minister Arun Jaitley would like a higher slab because it would shore up the finances of the government. But this would hurt the consumers who presently pay a 14 and half to 15 per cent service tax. India, which has diverse levels of economic groups, cannot afford one slab that would hurt the interest of the poor and economically lower middle income groups. At the same time a multiplicity of taxes is not good as it could give rise to misinterpretation and leakages. Hopefully, the council has considered all these issues whilst going through the 25 chapters that constitute the Model GST Law.
Whilst the four-slab structure has been welcomed, the sticky point is the introduction of a cess on luxury goods and so called “sin” goods like tobacco and liquor. Interestingly, the oil and gas sector has not taken kindly to being left out of the purview of the GST. There has also not been any explanation for this from the government. Even the Qatar-based Ras Gas, which supplies gas to India, has commented on this. Perhaps the council should consider this while taking the country towards a common market.
