GST needs a booster shot, but will be tough sell for Govt

The GST needs a major overhaul in its rate structure—a tough political call that the government needs to take sooner rather than later. This despite the tremendous improvement in GST collections witnessed since the last financial year. The need to overhaul the GST rate structure stems from the fact that the revenue neutral rate as calculated by the 15th Finance Commission was supposed to be 15.6% but the actual average rate is 11.8%. The Finance Commission has also noted that GST has the potential to generate revenue at 7.1% of GDP, but is actually generating only around 5% of GDP. This necessarily means that the states and the Central government are losing around Rs 4 lakh crore of revenue at the current level of GDP.

This ‘leakage’ of revenue needs to be fixed, and so the Central government and the GST Council have gone into a huddle to discuss the issue, again. A Group of Ministers (GoM) under the aegis of the GST Council is deliberating on a major rate revision. Assisting the GoM is the Fitment Committee of the GST Council. Apart from increasing the GST rates on many goods and services, the GoM would also be deliberating on changes in the current GST slab—5%, 12%, 18% and 28%. And as the information is getting filtered out, some media reports have suggested that the Fitment Committee has proposed increasing some of the slab rates by 200 basis points—for example the 5% slab should be hiked to 7% and the 18% slab to 20%.

Another report suggests that the National Institute of Public Finance and Policy (NIPFP) has proposed a three-slab structure—8%, 15% and 30%—instead of the existing four. Also, the NIPFP, in a report, has said that the merger of 12% and 18% slabs to any slab lower than 18% would lead to revenue loss. Going by the tone and tenor of the current discussions and reports coming out in the media, it is clear that indirect taxes on goods and services would go up significantly, and it is no longer a question of if but when. The decision to increase the GST rates would come at a political cost, mostly to the party that has a government at the Centre. It is to be seen how soon the government is ready to bite the bullet.

SOURCE:https://www.newindianexpress.com/opinions/editorials/2021/nov/29/gstneeds-a-booster-shot-but-will-be-tough-sell-for-govt-2389347.html

The rate reset: On slashing GST slabs

Since its onset in 2017, the GST regime to subsume multiple State and Central levies was criticised for far too many tax rates that were amenable to creating complications instead of simplifying taxation. The Government had hinted that rates could be reviewed once the system stabilised. Now, with GST in its fifth year, the Government has assessed it is about time to consider a reboot, partly because revenues are falling short of expectations, despite healthy monthly collections. Next month, a Group of Ministers set up by the GST Council is expected to propose changes, including merging slabs, with a road map for immediate, short- and medium-term changes. This mandate marked an expansion of its initially stated task of rationalising tax rates to bolster revenues. To recap, there are eight effective GST rates, including zero on essential goods, standard rates of 5%, 12% and 18% for most goods and services, and a 28% tax plus GST Compensation Cess on sin or demerit goods. Special low rates are specified for jewellery, precious stones and supplies to exporters.

The effective tax rate under GST has slipped from the original revenue-neutral rate of 15.5% to 11.6%, which Finance Minister Nirmala Sitharaman said occurred due to rate cuts effected across categories since 2017. Quite a few stemmed from the GST’s hasty beginning and errors in the initial rate-setting. The Council continues to resolve genuine hardships this created for industry segments, but the constant tweaks have also altered the original revenue dynamics envisaged. The 18% tax rate, levied even on insurance premium payments, now accounts for the largest taxable turnover, as a National Institute of Public Finance and Policy (NIPFP) paper points out. Reducing the 18% rate or merging it with the 12% slab will thus entail revenue losses that would have to be offset by hikes in the lowest and/or highest rates. The NIPFP has suggested a structure of 8%, 15% and a 30% rate for sin goods, to protect revenue concerns while minimising the need for a sharp hike at either end of the spectrum and leaving special rates untouched. This may be less contentious than raising rates on bullion, reportedly proposed to the GoM, which could only spur tax evasion. Sequencing the implementation of new rates and avoiding far-too-frequent rethinks would be critical to minimise disruptions and engender investor confidence. The Council must also urgently address data limitations flagged by the NIPFP. For several months this year, the Government did not reveal returns filed by taxpayers even as it claimed GST collections reflect recovery and improved compliance. Also, many GST rate cuts that triggered the current resource worries were aimed at pandering to regional considerations ahead of critical elections. With key State polls soon, the Government’s resolve to carry out a hard reset on GST rates now may be tested.

SOURCE:https://www.thehindu.com/opinion/editorial/the-rate-reset-the-hindu-editorial-on-slashing-gst-slabs/article37711662.ece

Auto-Rickshaw Services Provided Through E-Commerce Platforms To Attract 5% GST

Auto-rickshaw services provided through e-commerce platforms would attract 5 per cent GST from January 1, 2022. The Revenue Department under the Finance Ministry through a notification dated November 18 withdrew the GST exemption available to auto rickshaws providing passenger transport services through e-commerce platforms.

While the passenger transport services provided by auto rickshaw drivers through offline/ manual mode would continue to be exempt, such services when provided through any e-commerce platform would become taxable at five per cent effective January 1, 2022.

“This amendment shall have a direct impact in the case of e-commerce industry players who provide an online platform to a large number of auto rickshaw drivers for connecting with riders. E-commerce industry has established a very crucial place in the market when it comes to facilitating passenger transport services owing to its cheaper, convenient and flexible manner of booking rides.

“The newly inserted provision would render rides booked through e-commerce platform costlier thereby creating tax disparity for the same service when provided through offline vis-à-vis online mode,” EY India Tax Partner Bipin Sapra said.

GST GoM defers meeting, will submit final report to Council next month

The Group of Ministers constituted to review the current rate slab structure under the Goods and Services Tax (GST) regime has deferred its final meeting on November 27 to discuss various proposals for rate rationalisation and measures to shore up revenues. The ministerial panel is now expected to directly submit its report to the GST Council, which may not reflect the concerns raised by some states over recommendations of major rate tweaks by an officer-level fitment committee.

The officer-level fitment committee is learnt to have recommended raising of tax rates from 5 per cent to 7 per cent and 18 per cent to 20 per cent, for which some state finance ministers had raised concerns over impact of such major rate changes. Some states had cited concerns about the inflationary impact of any such major rate hikes, especially in the aftermath of Covid. With some states holding an opposite view, recommendations of the fitment committee were not likely to be accepted in total in the GoM meeting. The Council is now expected to hold a meeting in December.

The Group of Ministers (GoM) on rate rationalisation, headed by Karnataka Chief Minister Basavaraj Bommai, also includes West Bengal principal chief advisor to the Chief Minister and the finance department Amit Mitra, Kerala Finance Minister K N Balagopal, and Bihar Deputy Chief Minister Tarkishore Prasad, had met twice so far and was scheduled to meet on November 27 to consider recommendations of the Fitment committee regarding GST rate and slab changes.Over its last two meetings, the GoM has reviewed items under an inverted duty structure to help minimise refund payout. The inverted duty structure, wherein the tax rate on output is less than the rate on inputs, has been corrected for textiles and footwear by hiking the GST rates for them. After the previous Council meeting in September, two ministerial panels were constituted for spelling out a blueprint for GST reforms. The panels’ brief incorporates an overarching mandate: an evaluation of “special rates” within the tax structure, rationalisation measures that include “a merger of tax rate slabs for simplifying the rate structure”, alongside a review of instances of inverted duty structure and an identification of potential sources of evasion to shore up revenues. The GST has five key slabs: zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent. A compensation cess, ranging between 1 per cent and 290 per cent, is levied on demerit and luxury goods over and above 28 per cent. The merger of 12 per cent and 18 per cent slabs was considered earlier but never taken up formally by the Council.

source:https://indianexpress.com/article/business/economy/gst-gom-defers-meeting-will-submit-final-report-to-council-next-month-7643748/

The rate reset: On slashing GST slabs

Since its onset in 2017, the GST regime to subsume multiple State and Central levies was criticised for far too many tax rates that were amenable to creating complications instead of simplifying taxation. The Government had hinted that rates could be reviewed once the system stabilised. Now, with GST in its fifth year, the Government has assessed it is about time to consider a reboot, partly because revenues are falling short of expectations, despite healthy monthly collections. Next month, a Group of Ministers set up by theGST Council is expected to propose changes, including merging slabs, with a road map for immediate, short- and medium-term changes. This mandate marked an expansion of its initially stated task of rationalising tax rates to bolster revenues. To recap, there are eight effective GST rates, including zero on essential goods, standard rates of 5%, 12% and 18% for most goods and services, and a 28% tax plus GST Compensation Cess on sin or demerit goods. Special low rates are specified for jewellery, precious stones and supplies to exporters.

The effective tax rate under GST has slipped from the original revenue-neutral rate of 15.5% to 11.6%, which Finance Minister Nirmala Sitharaman said occurred due to rate cuts effected across categories since 2017. Quite a few stemmed from the GST’s hasty beginning and errors in the initial rate-setting. The Council continues to resolve genuine hardships this created for industry segments, but the constant tweaks have also altered the original revenue dynamics envisaged. The 18% tax rate, levied even on insurance premium payments, now accounts for the largest taxable turnover, as a National Institute of Public Finance and Policy (NIPFP) paper points out. Reducing the 18% rate or merging it with the 12% slab will thus entail revenue losses that would have to be offset by hikes in the lowest and/or highest rates. The NIPFP has suggested a structure of 8%, 15% and a 30% rate for sin goods, to protect revenue concerns while minimising the need for a sharp hike at either end of the spectrum and leaving special rates untouched. This may be less contentious than raising rates on bullion, reportedly proposed to the GoM, which could only spur tax evasion. Sequencing the implementation of new rates and avoiding far-too-frequent rethinks would be critical to minimise disruptions and engender investor confidence. The Council must also urgently address data limitations flagged by the NIPFP. For several months this year, the Government did not reveal returns filed by taxpayers even as it claimed GST collections reflect recovery and improved compliance. Also, many GST rate cuts that triggered the current resource worries were aimed at pandering to regional considerations ahead of critical elections. With key State polls soon, the Government’s resolve to carry out a hard reset on GST rates now may be tested.

source:https://www.thehindu.com/opinion/editorial/the-rate-reset-the-hindu-editorial-on-slashing-gst-slabs/article37711662.ece

Apparel Makers Seek GST Hike Deferment On Hosiery Items

The proposed change in GST rate from 5 per cent to 12 per cent is going to significantly increase the prices of apparels now costing below ₹ 1,000

Expressing concern over the Centre’s recent notification on higher Goods and Service Tax (GST) rates to be levied on several apparel items from January 1, 2022, a prominent hosiery manufacturers” association has sought its deferment, saying it will impact the common man and those in the micro small and medium enterprises (MSME) sector.

The proposed change in the rate from the existing 5 per cent to 12 per cent is going to significantly increase the prices of apparels now costing below ₹ 1,000, office bearers of the Federation of Hosiery Manufacturers Association of India (FOHMA) said.

The move will impact the weaker section of society, who mostly buy clothes priced below Rs.1,000.“What is more important is that more than 85 per cent of India’s total garment market is below the ₹ 1,000 price level,” they added.

Additionally, the proposed merger of 12 per cent and 18 per cent slabs to a single rate will result in a staggering increase of 30 per cent in the GST rate for garments.”We from the FOHMA had made several representations to the government and GST Council, requesting them to defer the increase for the cause of the Indian hosiery and apparel industry. Unfortunately, our fervent requests have not been considered at all and it is extremely saddening,” the association officials said.

In the industry, where most of the units are in the MSME sector, increasing the rate to 12 per cent for fabrics will hit the people associated with the sector as they are already stretched for resources and “financial capital”, they informed.

Any further pressure on the small industries would be uncalled for at this juncture, the association office bearers said.

source:https://www.ndtv.com/business/apparel-makers-seek-gst-hike-deferment-on-hosiery-items-2624991

Centre urged to defer GST rate hike on apparels

The proposed change in the rate from the existing 5 per cent to 12 per cent is going to significantly increase the prices of apparel now costing below Rs 1,000, officials of the Federation of Hosiery Manufacturers Association of India (FOHMA) said.

Since its implementation on July 1, 2017, the GST system has faced issues related to assessment and disputes, and what items to bring under the system’s purview.

Expressing concern over the Centre’s recent notification on higher GST rates for several apparel items from January 1 next, a prominent hosiery manufacturers’ association has sought its deferment, saying it will impact the common man and those in the MSME sector.

The proposed change in the rate from the existing 5 per cent to 12 per cent is going to significantly increase the prices of apparel now costing below Rs 1,000, officials of the Federation of Hosiery Manufacturers Association of India (FOHMA) said.

The move will impact the weaker section of society, who mostly buy clothes priced below Rs.1,000. “What is more important is that more than 85 per cent of India’s total garment market is below the Rs. 1,000 price level,” they said.

Additionally, the proposed merger of 12 per cent and 18 per cent slabs to a single rate will result in a staggering increase of 30 per cent in the GST rate for garments.

“We from the FOHMA had made several representations to the government and GST Council requesting them to defer the increase for the cause of the Indian hosiery and apparel industry. Unfortunately, our fervent requests have not been considered at all and it is extremely saddening,” the association officials said.

In the industry, where most of the units are in the MSME sector, increasing the rate to 12 per cent for fabrics will hit the people associated with the sector as they are already stretched for resources and financial capital, the officials said.

Any further pressure on the small industries would be uncalled for at this juncture, the FOHMA said.

source:https://www.moneycontrol.com/news/business/economy/centre-urged-to-defer-gst-rate-hike-on-apparels-7763611.html

Bring in three-rate GST structure, says study by Finance Ministry-backed think-tank

The Government can rationalise the GST rate structure without losing revenues by rejigging the four major rates of 5%, 12%, 18% and 28% with a three-rate framework of 8%, 15% and 30%, as per a National Institute of Public Finance and Policy (NIPFP) study.

The findings of the NIPFP, an autonomous think tank backed by the Finance Ministry, assume significance as the GST Council has tasked a Group of Ministers, headed by Karnataka CM Basavaraj S. Bommai, to propose a rationalisation of tax rates and a possible merger of different tax slabs by December to shore up revenues.

Multiple rate changes since the introduction of the GST regime in July 2017 have brought the effective GST rate to 11.6% from the original revenue neutral rate of 15.5%, Finance Minister Nirmala Sitharaman pointed out at the last Council meeting in September.

“Merging the 12% and 18% GST rates into any tax rate lower than 18% may result in revenue loss. Our study proposes that the GST Council may consider a three-rate structure by adopting 8%, 15% and 30% for revenue neutrality,” NIPFP associate professor Sacchidananda Mukherjee told The Hindu.

The nature of rate changes has also meant that over 40% of taxable turnover value now falls in the 18% tax slab, thus any move to dovetail that slab with a lower rate will trigger losses to the tax kitty that need to be offset by marginal hikes in other remaining major rates — 5% and 28%.

The 28% rate is levied on demerit goods such as tobacco products, automobiles and aerated drinks, along with additional GST compensation cess.

If the revenue loss from merging the 12% and 18% slabs were to be met by just hiking the rate on demerit or sin goods, the highest GST rate would have to be raised to almost 38%. Alternatively, the lowest standard rate will have to be raised from 5% to about 9%.

‘Revenue leakages’

Currently, the GST regime levies eight different rates, including zero for essential goods and special rates of 0.25% on diamonds, precious stones and 3% on gems and jewellery. The NIPFP paper assumes these rates remain unchanged after noting that raising rates on ‘high-value low volume goods’ like precious stones and jewellery ‘may encourage unaccounted (undisclosed) transactions and therefore revenue leakages’.

Restructuring GST rates is a timely idea to improve revenues, Mr. Mukherjee said, adding that it was important to sequence the transition to the new rate structure so as to minimise the costs associated with tax compliance, administration and economic distortions.

If the GST rate structure prevailing at its onset in July 2017 was restored last year, additional GST revenues of nearly ₹1.25 lakh crore could have accrued in 2020-21, estimates the NIPFP paper titled, Revenue Implications of GST Rates Restructuring in India: An Analysis.

‘Useful methodology’

“The results are indicative given the limitations of data, but the methodology developed in this paper could be useful for any future analysis of restructuring of the GST rate structure,” Mr. Mukherjee said.

“The GST Council may consider placing some aggregate data in the public domain to help policy research as binding data limitations hinder meaningful research of the GST regime,” he averred.

source:https://www.thehindu.com/business/Economy/bring-in-three-rate-gst-structure-says-finance-ministry-think-tank-study/article37692367.ece

GST evaders of Prayagraj zone under scanner of tax department

Two teams of the commercial tax department are collecting details of such traders in Prayagraj, Pratapgrah and Kaushambi districts who have evaded goods and services tax (GST) worth several lakhsOver two dozen traders in Prayagraj zone have come under the radar of commercial tax department for allegedly evading goods and services tax (GST) worth several lakhs, said an official.

Two teams of the department are collecting details of such traders in Prayagraj, Pratapgrah and Kaushambi districts, said the official of the department without wanting to be named.

The official said the accounts of these traders are carefully being looked into by the department and the details are being prepared both by the special investigative branch (SIB) and the mobile squad of the department.

The department is collecting details of purchase and sale data and transactions of bank accounts of these traders following which the GST that has to be deposited by them is being calculated and compared to what the individual firms have deposited in the state exchequer, the official said.

The action is part of statewide exercise being initiated to increase the overall revenue of the state

The recent raid at a mobile shop owner of the Indira Bhavan of the posh Civil Lines locality too is being seen as a part of this exercise. It is alleged that this mobile shop owner had sold goods worth 70 crore but had paid tax of less than 1 lakh thus evading tax of around 30 lakh.

The official said after scrutiny of documents and submission of evidences, action will be taken against these traders.

The teams are working out the amount of tax collected from such traders who are into the business of iron, LED products, fridge, washing machine and sales of other electronics goods. Besides, hardware dealers, mobiles shop owners etc too are also under watch. The team suspects that these traders may have individually evaded taxes between 10 and 40 lakh.

source:https://www.hindustantimes.com/cities/lucknow-news/gst-evaders-of-prayagraj-zone-under-scanner-of-tax-department-101637775264648.html

GST rate: IT Ministry to meet mobile phone makers, seek Budget inputs

The Ministry of Electronics and Information Technology is likely to meet mobile phone and allied component makers again this week to discuss possible steps on rationalisation of levies such as Goods and Services Tax (GST). The meeting will be held before the scheduled meeting of GST Group of Ministers (GoM) meeting on November 27, sources said.

“There are some concerns we are aware of. We had some meetings in the past and we understand what we need to do. We will have a couple of more meetings to figure out how to best rationalise these levies,” a senior ministry official said. In its meetings with the industry associations, the Ministry is also likely to ask them to prepare a report on their demands from the Budget, sources said.

In meetings over the last few weeks, mobile phone and allied component makers have in their submissions told the IT Ministry that the levy of 18 per cent GST on mobile phones had “led to very high costs”, and should be brought down to 12 per cent. They have also submitted that GST on allied component be reduced to 5 per cent.

source:https://indianexpress.com/article/business/gst-rate-it-ministry-mobile-phone-budget-7639971/