oppn parties GST Council: Checking Evasion, Rationalizing Rates Should Be Top Priority Now

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GST Council: Checking Evasion, Rationalizing Rates Should Be Top Priority Now

By Sunil Garodia
First publised on 2019-12-23 08:51:19

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

Every time there is a shortfall in tax collections, the urge to raise the rates is very strong. This time too, facing a huge downturn in the economy and the resultant drop in GST collections, there was a demand in some quarters that taxes needed to be raised to make up the shortfall. That the GST Council did not fall for the trap is welcome. It is a well-known fact that high tax rates act as an incentive for evasion while lower rates induce better compliance. What the GST Council should now do is to rationalize the rates to have just three rates - perhaps a 15% rate at which the majority of goods and services should be taxed with a 5% rate for essential commodities and a 28% rate for those that are considered luxury or 'unwanted' products. It should also use the data uploaded to check evasion. There is a mine of data being uploaded by all taxpayers and with appropriate software, it will be very easy to collate the same and detect if businesses are evading taxes or even the whole production chain is doing it. There is also a need to look into the areas where inputs are being taxed at rates higher than the finished product. Further, items like petroleum products, electricity, tobacco, real estate and alcohol should now be brought under the GST regime. This would allow manufacturers to claim credit for input taxes paid across the value chain. That, in turn, would boost revenue and make for efficient production.

The second good decision that the Council took was to have one rate for lotteries. Earlier, lotteries by state governments were taxed at 12% if they were sold within the state and at 28% if sold in other states. This was against the principle of 'one nation one tax' on which the GST is based. There was resistance from some states, notably Kerala, against this and a consensus was not reached. For the first time ever, the GST Council voted to have the proposal passed. While voting goes against the spirit of federalism, it is the most sensible way of settling such vexed issues. As the GST regime moves from being work-in-progress to a solid, sustainable architecture, there will be many such issues on which it will be difficult to reach a consensus. Voting, therefore, will have to be the preferred way of getting out of tricky situations.

The other big issue before the GST Council was the fact that the states are becoming increasingly miffed with the Centre for delaying payments. The Centre usually transfers the funds after two months. But the payments for August and September were delayed. Although the Centre released the bulk of the payments before the GST Council meeting, the delay has sown seeds of distrust in the minds of some states. They are now also not sure whether the cess on GST will be enough to offset the shortfall this year. They also want the protection to be extended by a few years. These are problematic issues that will always come up when there is a downturn in the economy. The Centre will have to think of a way to protect the interests of the state until the economy gets back on the rails.