Finance minister Arun Jaitley has given the hint that further changes in the Goods and Services Tax are in the offing and criticized those who are trying to link rate cuts on about 200 items on Friday to the Gujarat elections. He said it was “juvenile politics” to link the reduction in rates to the state assembly polls.
“There is obviously scope for rationalisation of rates. In four months, we have rationalised the 28% slab,” he said at a select media interaction, adding that such streamlining will continue in the transition period. GST was launched on July 1and the GST Council has met every month to solve issues. The council makes recommendations to the Centre and the states on important issues related to GST.
“Such rationalisation in future, depending on revenue buoyancy, will take place... Procedural rationalisation will happen,” the minister said. “So, wherever there is scope, improvement and procedural simplification will always continue.” The next round of rationalisation will focus on the 5% and 12% slabs, which have about 250 items each.
Jaitley, who chairs the GST Council, said the approach of the body has been to be pragmatic and not rigid. “We react to market realities,” the minister said. The GST Council cut the number of items in the 28% slab by 178 to 50 on Friday. “We expect all the tax rate benefits to be passed on to consumers and this actually brings down inflation. This is the advantage of an efficient tax system,” he said. One of the main objectives when the new tax was rolled out was that the transition has to be smooth, he said.
“This rationalisation is a three-four month exercise, which the council and the fitment committee have recommended. These are all consensus decisions of the council,” Jaitley said, slamming critics for linking the changes to the Gujarat elections, scheduled next month. “This is really juvenile politics to link it with either elections or political demands.”
Congress vice-president Rahul Gandhi has demanded a GST rate of 18%. Former finance minister P Chidambaram had tweeted soon after the council’s decisions, thanking the elections in Gujarat. “Thank you Gujarat. Your elections did what Parliament and common sense could not do,” Chidambaram said on Twitter.
Jaitley said those who spoke of a single GST rate have no understanding of the tariff structure. “Food items have to be taxed at nil. Aam aadmi items have to be taxed at the lowest range of 5%. Luxury goods, sin products and products hazardous to environment and health can’t be taxed at the same rate as aam aadmi products,” he said. “So wheat, rice, sugar can’t be taxed at the same rate as a Mercedes car or yacht or tobacco. So those who speak of a single rate today have no elementary understanding of GST.”
The minister said the council had to resort to a tough decision on the issue of input tax credit for restaurants. “We had to take a tough decision on removing input tax credit for restaurants. They pocketed the tax credit and did not pass on the credit to consumers, which was unfair,” he said, adding that the GST Council felt consumers should not have to pay more.
On the formalisation of the economy and the past tendency of dealing in cash fuelling anti-GST sentiment, Jaitley said there is a natural tendency to oppose or not accept change in the beginning. “But I have no doubt that in the medium and long term, businesses will realise that this is a change for the better,” he said.
“You have a larger market, you have a more efficient business plan, you have freedom from inspectors, you don’t pay tax twice over, you get input credits, your relationship with the tax department is only through the software and if you are a small player, take advantage of composition, which is 1%,” he said, listing the benefits of the new regime.
“The fact that there is a single rate for products, all barriers have gone, inspectors have disappeared, you only have to address software. I think there is already a net advantage in the medium and long term – smooth and a larger market and revenue buoyancy,” he said.