May 31, 2023

The GST Council, in its collective wisdom, still thinks that imposing a cess on the highest taxed slab of so-called sin goods is necessary. But it goes against the principle of GST which was envisioned and designed to subsume all cesses. Any compensatory pool could have been created by earmarking a percentage from sin goods for that purpose, while taxing them at a still higher percentage. Once a precedent for imposing cess is put in place, it is likely to be abused on the smallest of pretexts.

The other decisions of keeping daily essentials out of the ambit and taxing other regular necessities at just 5% need to be welcomed. But the government will have to ensure that companies pass on the benefits to the consumer and do not increase prices to realize the stated benefit of less inflationary pressure. It also needs to be ensured that most other products and services come under the 18% slab. Luxury items taxed at 28% should exclude smaller petrol and electric cars.

It is good that a consensus has been reached on the rates. It will ensure an early roll-out. The Council should rethink the cess and exemptions should be kept at a minimum. The focus should now be on the IT backbone, the training of staff and the actual transition. The teething problems can be sorted out once GST is up and rolling.