GST 2.0: Time for a reset?

Is it time to initiate the much-needed second-generation reforms in the Goods and Services Tax (GST) regime? “The woods are lovely, dark and deep, but I have promises to keep, and miles to go before I sleep, before I sleep,” – Robert Frost’s words ring in the ear as the integrated indirect tax regime in India turned six on July 1. The all powerful GST Council is set to meet for the 50th time on July 11, in New Delhi. This is a good time to examine the promises yet to be delivered by the regime, other deliverables and what the immediate future holds for the system.

Rate Rationalisation

The present GST rate structure is slabbed at nil or 0 levy, 5 per cent, 12 per cent, 18 per cent and 28 per cent with applicable cess. According to World Bank’s 2018 biannual ‘India Development Update Report’, while most countries have a single GST rate structure, India has one of the largest number of slabs. Also the levy of 28 per cent on a subset of goods and services is the second highest among the 115 countries that have embraced the GST system.

Also Read: GST and Council have done well, will get better

The 7-member Group of Ministers (GoM) for rate rationalisation was constituted in September 2021, submitted an interim report to the GST Council in June 2022. Expectations are the GoM’s final report is likely to suggest raising the lowest 5 per cent levy to 8 per cent, merging the 12 per cent and 18 per cent into 15 per cent, and completely doing away with 28 per cent or pruning the list of goods and services in its bracket.

Non-inclusion of petrol and diesel/fuel

In the absence of states’ consent, the Central Government kept five petroleum products - crude oil, natural gas, petrol, diesel and aviation turbine fuel - out of the GST ambit.

However, on the directive of the Kerala High Court, the GST Council, in its Lucknow meeting on September 17, 2021, deliberated the possibility of bringing petrol and diesel under GST. As per its official minutes, Maharashtra vehemently opposed the inclusion, stating the revenue implications. Delhi pressed for a new tax slab rate on the basis of the current ratio of VAT/CX component. Rajasthan too dithered over the burden it will put on the states’ exchequer and the compensation package that would ensue. On the same score Kerala insisted on larger deliberations. The GST Council concluded that it was “not the right time yet” for the sought inclusion and intimated as much to the court.

However, with rising demand for their inclusion from all quarters, the Union Government may constitute a Committee of State Finance Ministers to deliberate the issues again further, and again explore the possibility of bringing them under the GST ambit - one commodity at a time, if not all at once - eventually.

Also Read: GST mop-up rises 12 per cent to over Rs 1.61 lakh crore in June

Appellate Tribunal

The much-delayed constitution of the GST Appellate Tribunals (GSTAT) finally got a push. After the GoM’s report on GSTATs was adopted with some modifications, by the GST Council, in February this year, new provisions for creating the tribunals were inserted in the amendments to the Finance Bill, 2023, in March. In June, the Centre directed all states to approve changes to their legislations by October 2023 to set up one or more benches, with a principal bench in New Delhi for the larger states. The benches are expected to be in place across the country by December or January.

Only, one factor could thwart this timeline. Lawyers have been barred from joining the benches as judicial members, with the role being restricted to district judges, with or without prior experience in dealing with tax matters. This is a clear departure from the established principles and against binding precedents set by the Supreme Court and the very constitutionality of the tribunal could get challenged.

The political ambience

During the second part of the calendar, five more States - Madhya Pradesh, Rajasthan, Chhattisgarh, Telangana and Mizoram - will hold their assembly elections followed by the general elections next year. It will be interesting to see if there will be any major changes on the cards in the upcoming GST Council Meetings or if it will be delayed until the new government assumes office in May/June 2024. Nevertheless, the healthy growth of GST is an opportunity for the present regime to initiate a slew of measures without waiting for the electoral process to be over.

(Writer is Founder & CEO of Shree Tax Chambers)