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In Focus

Posted at: Jul 2, 2018, 1:06 AM; last updated: Jul 2, 2018, 1:06 AM (IST)

From good to better

From good to better

The existence of cess in the Goods and Services Tax regime is distortive and against the spirit of the indirect tax reform. Any form of levy on GST is retrogressive, says Janak Raj Gupta

It is one year of the implementation of Goods and Services Tax (GST). Besides facilitating barrier-free movement of goods within the country, India is moving towards a better tax-compliance nation. Gains of GST are numerous. Therefore, no political party or state has opposed this indirect tax reform. It is, however, going through some teething troubles because it was implemented in a rush. These issues need to be addressed in the spirit of cooperative federalism. 

Multiple concerns

GST has more tax slabs than originally envisioned - 0, 5, 12, 18 and 28 per cent. Besides that, there are special rates for gold, precious stones and cess on some luxury items. But petrol, diesel, electricity, real estate and alcoholic drinks are still outside the purview of the GST. 

Small and medium enterprises have been complaining that not only their compliance costs have gone up, but also their margins have come down. Their businesses, particularly production, have been adversely affected, which has aggravated the unemployment problem.

No doubt, unified GST has increased tax compliance. On an average, the GST collection has been around Rs 90,000 crore between July 2017 and March 2018. Introduction of e-way bills, which are electronically generated and can be effectively used to track the movement of consignments, will boost the GST revenue. With the introduction of other anti-evasion measures such as credit matching and TDS/TCS, the GST collection is expected to go up. However, some unscrupulous traders have found a way to evade the tax. They are transporting goods through carts and other manual means to avoid e-way bills. States often yield to local pressures and look the other way. To check such tendencies, the centre should ensure that CGST and IGST have been paid on all such commodities. Consumers should also be educated to get receipts for every purchase and those with maximum number of receipts may be awarded.

Thorny issues

Taxes on petroleum products are very high. Such products, particularly petrol and LPG, are, however, for self-consumption. Having no externalities, there is no harm in taxing these commodities at higher rates. They are great sources of revenue. 

To lower the burden on the consumer, a reduction in excise duty by the Centre and lowering VAT rates by states could be considered. In the case of the agriculture and transport sector, some solution has to be found. Ideally, petroleum products should be brought under GST. Expenditures in refinery, pipeline and exploration attract GST. The sector can claim "input credits" only if GST is levied on petroleum products. 

As far as taxes on alcoholic drinks are concerned, they should remain outside the GST because heavy state taxes on such 'sin' items act as a deterrent for their consumption. The real estate sector could, however, be brought under the GST regime, as it has great employment potential. 

Expand the net

GST has replaced several taxes; therefore, efforts should be made to widen its base. For example, the tax can be levied on maintaining a minimum bank balance or on ATM services. Instead of putting burden on the consumer, banks should be taxed in some other form as they are the recipients of non-taxable receipts. Similarly, restaurants, which buy different ingredients by paying GST, should not be paid any tax-credit as they pass on the total cost (including GST) to consumers. The GST Council should take up these issues soon. 

It is required that the GST regime remains simple. There is no place of cess on the GST. It must be remembered that any reform, particularly tax reform, in a federal setup is an ongoing process. GST is still in its infancy and states' cooperation is the pre-requisite for its implementation. Therefore, there is a need to make the GST Council a constitutional body. 

Number crunching

GST collection in June 2018

  • Total Rs 95,610 cr 
  • CGST Rs 15,968 cr
  • SGST Rs 22,021 cr
  • IGST  Rs 49,498 cr 
  • Cess Rs 8,122 cr
Net revenue after settlement

  • Centre Rs 31,645 cr 
  • States Rs 36,683 cr

(Source: Finance Ministry)

Historical GST collection  

Month Collection

  • May, 2018 Rs 94,016 cr
  • April, 2018 Rs 1,03,450 cr
  • March, 2018 Rs 89,264 cr
  • February, 2018 Rs 88,047 cr
  • January, 2018 Rs 88,929 cr
  • December, 2017 Rs 83,716 cr
  • November, 2017 Rs 85,931 cr
  • October, 2017 Rs 95,132 cr
  • September, 2017 Rs 93,029 cr
  • August, 2017 Rs 93,590 cr

(Source: Lok Sabha)

Total number of returns filed 62.47 lakh

Total GST compensation to states (2017-18) Rs 47,844 cr

Ongoing reform

July 21: The 28th GST Council will meet in New Delhi

Expected points of discussion: Inclusion of items like ATF, natural gas 

  • Rationalisation of tax rates 
  • Procedural simplification 
  • Reduction of tax slabs
Refunds to exporters by June 16, 2018: Rs 41,548 cr

— The writer is former Professor of Economics, Punjabi University, Patiala


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