Editorial: Need a Good and Simple Tax

It would be remiss to brush aside pain points of the tax reform. The Congress had highlighted earlier this month that implementing GST had wrecked the economy severely.
Editorial: Need a Good and Simple Tax

CHENNAI: Five years ago, the Centre rolled out one of the biggest economic reforms in independent India. The Goods and Services Tax has witnessed a gradual acceptance of sorts from stakeholders, with a few notable exceptions. The positive narrative drummed up by the government tells us that GST rang in a paradigm shift in the use of technology for tax compliance. Revenue collections in excess of Rs 1 lakh crore every month has also become the new normal. To give credit where it’s due, the intent behind introducing the new tax regime was noble.

The nationwide GST subsumed 17 local levies including excise duty, service tax and VAT along with 13 cesses, and brought in a four-slabbed structure that imposes a lower tax rate of 5% on essential items and a top rate of 28% on products such as automobiles. A cess is imposed on luxury, sin and demerit goods, which goes to a Compensation fund to make up for the revenue loss incurred by States due to the rollout of GST. Apart from reducing the compliance burden, GST ironed out regional imbalances and eliminated inter-state barriers, which offered additional transparency to the revenue collection exercise.

It would be remiss to brush aside pain points of the tax reform. The Congress had highlighted earlier this month that implementing GST had wrecked the economy severely. Former Finance Minister P Chidambaram pointed out that the GST regime includes a mix of rates, conditions, exemptions and exceptions that could leave any taxpayer bewildered. He emphasised that the defects in the roll-out had compelled the government to issue as many 869 notifications, 143 circulars and 38 orders over a period of five years, implying a change every second day.

The GST Council has been called out for the manner in which arrears of Compensation Cess have been held back from States by the Centre, as well as the absence of consensus between members during the GSTC meeting, which has often resulted in a deadlock of sorts between the two parties. Even Tamil Nadu’s Finance Minister PTR Palanivel Thiaga Rajan had lambasted the GST saying how a complete rethink and overhaul was necessary in this matter. The Tamil Nadu Chamber of Commerce had also recently urged the State government to disregard the GST hike on essential food products.

Following the 47th GST Council meeting, the Union Finance Minister approved levying of GST on all retail items including packaged goods and labelled foods. Exemptions were withdrawn on taxation of food grains, like wheat flour too. This will bring pre-labelled products like curd, lassi, paneer and buttermilk under the 5% GST slab, which will cause dairy companies to hike their consumer prices to pass on the impact of additional costs to the buyer. On the plus side, taxing these firms would now help them avail input tax credit on their products.

A wish list provided by the industry and policy experts sheds some light on what must be done with GST in the days to come. One demand is to bring petro products under GST, more specifically LNG and aviation turbine fuel (ATF). It will help firms avail of input tax credit on production. A GST Appellate Tribunal must be constituted soon to help sort out grievances between government and taxpayers. Glitches in tax compliance and return filings must be ironed out optimally. There is also room for rationalisation in tax structure, as fewer slabs could simplify the tax regime to a great extent.

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