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Goods and Services Tax (GST): Work in progress?

A year has elapsed since the introduction of Goods and Services Tax (GST) across the country on July 1, 2017, and the indirect tax regime remains a work in progress. The NDA government is now in an election year, so the latest round of tweaking of GST rates was expected. In the GST council meeting on Saturday last, rates for about 100 commodities were cut, with Central and State governments both anxious to keep consumers happy.

However, financial experts keep warning that populist decisions to prune rates can hurt tax collection. States can continue to breathe relatively easy at present, because the Centre is bound by law to compensate States for losses incurred in implementing GST. There is relief for the middle class with slashing of GST on goods like small TV sets, washing machines, refrigerators, grinders and mixers.

Rates have been cut for Lithium-ion batteries, fuel cell vehicles, short transport trucks & trailers, ethanol for blending with fuel — items which cater to emerging sectors like mobile telecom, electric vehicles and fast transportation. As for sanitary napkins, there will be no GST at all. In its first year, GST has been faced with teething issues like small traders and wholesalers finding it hard to maintain proper GST invoices and bills, while making errors in filing tax returns.

Small and medium enterprises (SMEs) drive the country’s economy and absorb significant labour, so they have to be helped to adapt better in the new system. There is good news for small traders from Assam, along with those from Arunachal Pradesh, Meghalaya, Sikkim, Himachal Pradesh and Uttarakhand — the GST exemption limit has been raised to Rs 20 lakh of yearly turnover. Prime Minister Narendra Modi has rightly stated that a Mercedes car cannot be taxed at the same rate as milk, but the five GST slabs are difficult to juggle and cumulatively give India a high standard tax rate. And whenever petrol-diesel prices shoot up, questions are asked how long will Central and State governments keep fuel out of GST so as to keep taxing it to nearly double its price at the refinery gate. It is claimed that under GST, the E-way bill has eased transportation of goods.

But truckers are still a disgruntled lot, demanding among other things that diesel be made cheaper by taxing it under GST while third party insurance premiums be exempted from GST. There is a general acceptance of GST countrywide, and long lines of goods carriers at check-gates on State borders have become a thing of the past. As per government figures, average monthly returns under the GST regime has been Rs 97,540 crore though the target was Rs 1.1 lakh crore.

Undoubtedly compliance has increased, but irregular filing of returns and tax evasion continue to be challenges. Rather than populism, coordinated efforts by governments to simplify the tax filing regime while having fewer slabs will surely help broaden the tax base.

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Sentinel Group