Economic Highlights

New Delhi, 1 May 2023

High GST Fills Coffers

NEW AVATARPOST K’TAKA POLL?

By Shivaji Sarkar 

Would the economic fundamentals change with the Karnataka elections? They just might. The Assembly polls have drawn a serious debate on the GST rates. The clamour is now for one rate against the four prevailing. 

The issue has become a key controversy and is apportioned the blame for high prices even as collections are swelling to almost an average of Rs 1.40 to 1.50 lakh crore a month.  The issue has been catching up the imagination of the business class, which is bearing the brunt. The penalty provisions are stated to be atrocious and any failure, even for ignorance of the law, means extraction of heavy multiple penalty payments. 

The traders are raising the issue. This resulted in the issuance of 869 corrective notifications, 143 circulars and 38 orders. It’s a complicated task for seeking correction. The pleas have to include all the points to justify an argument that should have been a natural process. 

Since the GST structure is turning political and many State elections follow, the victory or loss in Karnataka would not bury the hatchet. Whosoever wants to be in the saddle, has to drastically change the law. Indian businesses would prefer to have the changes fast. 

The PHDCCI has always been requesting further rationalisation, meaning reduction of the overall rates of the GST.The FICCI says there is no need for a separate classification for capital goods, input and input services in the GST laws. It reiterates that for minimising disputes, the scope for interpretation should be eliminated. 

The CII is for the central government reducing the 28 percent GST rate and decriminalisation of the said law. It suggests that the applicability of the prosecution provisions must not be on the basis of the total amount of the evasion of the tax but “on real intent to evade the taxes along with a certain percentage of the tax payable”. 

The ASSOCHAM is for further streamlining the system. Almost all want fuel being covered by GST to reduce the tax burden on fuel. Petroleum fuel has 32 percent cess, till November 4, 2021, excise duties were Rs 27.90 per litre on petrol and Rs 21.80 on diesel. It was cut to Rs 19.90 and Rs 15.80 respectively. It has a heavy component of road cess too. The amount being collected by the Centre as excise duty/cess for each litre of petrol is Rs. 32.90 and Rs 31.8 per litre on diesel. There is a component of State taxes on average of 25 to 29 percent. 

The break-up of retail prices of petrol and diesel in Delhi, shows that around 54 percent of the retail price of petrol comprises Central and States taxes.  In the case of diesel, this is close to 49 percent.If it is subsumed in GST, as suggested by most business associations, it would substantially lower the fuel price. The Centre and many States have reservations. But the economics for central finances that is now dependent heavily on borrowings for a spate of infra projects do not allow the Central government to cut the taxes. The gross GST revenue collected during 2022-23 is Rs 18.10 lakh crore; Rs 1.37 lakh crore in 2021-22; Rs 12.22 lakh crore in 2019-20; Rs 11.77 lakh crore in 2018-19 and Rs 7.19 lakh crore in 2017-18. 

There are three components -- Central GST, State GST, integrated GST and cess, making it more complicated to compute.It is no more an economic issue but is turning political as the Congress is raising it frequently during the election campaign. It has taken the affront to change the law to suit the needs of the people and possibly put it in tune with what the UPA had envisaged. 

Raising it at a rally on April 24 at Beglavis’sRamduraga in Karnataka farmers’ belt,Congress leader Rahul Gandhi said the party would effectively change the law. He promised to change the GST structure and ensure remunerative prices to farmers if his party ‘is elected to power at the Centre’. Further, he said that contrary to the concept of the GST to help all, it has been “brought only to help the influential and it is complicated. Small businesses have been shut. We shall better farm marketing too”. 

Rahul Gandhi asserts, “There will be one tax and it will be a minimum”. He says the current slabs 5, 12, 18 and 28 percent would be done away with. His party is for a maximum slab of 18 percent.But that is a catch. An 18 percent high cannot be the one rate. The minimum now is too high at 5 percent. It has to come down to 2 percent. So, the debate will go on, but it creates pressure for the change. 

Rahul was echoing the views of former finance minister P Chidambaram who has been saying that the “so-called GST that is in force today was not the GST envisaged by the UPA government. The GST conceived by the UPA was one with a single, low rate across all goods and services with few exemptions. The GST that we have today is a complex web of many rates. Not all registered dealers are informed taxpayers; as a result, they are at the mercy of the tax-collector,” he said. 

Chidambaram explains: “There are serious problems with two authorities taxing. Half the taxpayers come under the Centre’s jurisdiction and the other half come under the States’ jurisdiction. The small taxpayers, small businessmen, should not have to go after the central tax collector”. Will Congress correct the absurdities such as 1.5percent GST on diamonds and 5 percent on flour, rice and curd? Congress apparently wants to restore powers of the States. Good arguments, but these too would need discussion.

The simple looking issue has touched the sentiments of the voters, more so as the BJP has not challenged the Congress contention. The BJP is facing sharp attacks on its governance issues in the State amid many allegations. The Congress is also raking up the issues of destruction of the medium and small industries, breakdown of trust between the States and the Centre and “consensus’ in GST as a sham as “Centre pushes through decisions”. 

Since then, counter-charges have become acerbic. Whatever be the results, it is certain that the GST might go through drastic change.---INFA 

(Copyright, India News & Feature Alliance)