Recently, the GST Council held its 23rd meeting and announced a range of changes with regard to the GST.
Click here to know the highlights of earlier GST council meet.
What are the highlights?
Rates - The council has placed around 200 items in lower tax bracket than they were originally.
This has left only 50 products under the highest 28% slab.
Small business - The GST Council has come out with a string of deadline relaxations and lowering of penalty for delayed filing of returns.
Companies with turnover up to Rs 1.5 crore have been allowed quarterly filing of returns.
Composition scheme - The immediate increase in the composition limit for small businesses will be Rs 1.5 crore from the earlier Rs 1 Crore, benefitting a wider group.
However the maximum composition upto Rs 2 Crore will be made through an amendment in the law.
Tax under the composition scheme will now be 1% irrespective of whether they are traders or manufacturers.
The scheme has also been opened up for the services sector, but it can be availed of only by those who provide services up to Rs 5 lakh.
E-commerce - Traders supplying goods from ecommerce platforms will now not be required to register if their turnover is below Rs 20 lakh.
This move will ensure a level playing field and bring in parity with their offline peers.
Restaurants - Earlier there were different tax rates based on whether restaurants were air-conditioned or not.
Now, all standalone restaurants will be taxed at 5 %.
With this change in the tax rate, restaurants have now been denied the benefit of input tax credit (ITC).
Earlier, restaurants were found to be not passing on the benefit of input tax credit to consumers.
What are the continuing flaws?
The recent changes have certainly tackled some debated, controversial provisions.
Structural - However, they have done little to address the basic design flaws with the GST regime.
The rate reductions for a range items will hardly do anything to simplify the complex and complicated structure of taxation in GST.
E.g. the non-inclusion of petroleum, real estate and alcohol, as well as the large number of items taxed at 0 percent continues.
High rates - The above is also one of the reasons why the rates are needed to be kept high.
As, it is a well-accepted principle that more items in the tax net allow for lower rates and vice versa.
Items - Even with the latest changes in tax rates, there seems to be a lack of logic in decision to tax certain items lower than the other.
E.g. Marble and certain sanitary fittings that are optional are taxed lower than cement which is a basic requirement for any proper construction.
Also, taxing of the same kind of products under different slabs without any proper reasoning continues.
Administrative - Frequent and piecemeal changes with rates create procedural cost and business uncertainty, and also create scope for lobbying.
State finance ministers have little incentive to address the structural problems of GST.
This is because the blame for any poor implementation or in other words the whole responsibility lies with the central government.
Also, the states don't suffer because even if the flaws lead to revenue loss, they are going to be compensated for the first five years.
The complicated rate structure persists also due to the fact that every state has its own pet products/service that it wants either exempted or taxed at a lower rate.
What lies ahead?
The economy may get an overall boost from the likely consumption boost and possibly witness a better tax compliance.
But for a sustainable transformation, India needs to move towards a two-slab structure and the reductions if any in future will have to be a step in that direction.
The Council must institute a transparent system with an explicit rationale for any rate changes in the future.
It is also suggested to have an annual review of GST rates instead of the ongoing frequent changes.
This is provided that any decision so taken will have to be a well thought out and logical one.
Also, the political dominance should be reduced, and outside experts should be involved in any attempt to fix the fundamental/structural flaws in the GST.
Quick Fact
Composition scheme
Firms under the composition scheme can pay tax at a low 1-2% and file 4 returns a year unlike the regular 18% and 37 returns a year.
In the earlier meet, the threshold of annual aggregate turnover was raised from Rs. 75 lacs to Rs. 1 crore.
