The GST Council’s move to cut rates of tax in 80-odd goods and services, which range from packaged drinking water in 20-litre bottles, second-hand vehicles, diamonds, low-cost housing and construction services and legal services to the government, along with the plan to reintroduce the reverse-charge mechanism to track transactions is pragmatic. Rightly, it is also examining alternate ways to make filing returns simpler.
The rejig shows the GST Council is willing to ascertain and fix the post-rollout glitches in the tax system to help lower retail prices and ease compliance. Mandating larger buyers of inputs to deduct GST at source on their procurement, so that they can take credit for it while depositing tax on their forward sales, would take care of their worry over small suppliers not doing their paperwork and give the government better collections. This reverse-charge mechanism would provide relief to small suppliers as well.
The council has made the e-way bill, generated from the GSTN portal with the bill number being made available to the supplier, the recipient and the transporter, mandatory for interstate transactions from February 1.
Whether an e-way bill is a remedy to curb evasion is debatable. It could raise the scope for corruption that was rampant at border checkposts in the pre-GST regime. A robust GSTN that ensures automatic matching of the details of inward supply with the corresponding details of the outward supply, obviates the need for such instruments.
Reportedly, traders are evading taxes using the so-called composition scheme that allows them to pay a flat nominal levy and are out of the credit chain. This is unacceptable.
Traders must face the penal consequences for violation, that includes under-declaration of the turnover, of the composition scheme. The council must work towards bringing large swathes of the informal sector under GST, lowering and converging rates, and simplifying procedures.
More course corrections may be warranted. The goal should be to raise tax collections from GST to 12% of GDP, about 50% higher than at present, when the bulk of the unorganised sector evades taxes.