Changes in GST must be more comprehensive than mere rate reduction: Congress

New Delhi: With Finance Minister Nirmala Sitharaman asserting that the GST rates will come down further, the Congress on Sunday said any changes in the tax must be more comprehensive than a mere rate reduction and stressed the need for a radically simplified and less punitive GST 2.0.

Congress general secretary in charge of communications Jairam Ramesh said his party had envisaged a GST 2.0 -- a truly "Good and Simple Tax"-- in its manifesto for the 2024 Lok Sabha polls, and it remains committed to that vision.

"The ball is now in the Union government's court- will they take this historic opportunity?" Ramesh asked in a statement.

"The finance minister has declared that GST rates will be reduced soon. The Indian National Congress reiterates that any changes in GST must be more comprehensive than a mere rate reduction," he said.

Reducing the tax on caramel popcorn, without fundamentally reforming a system that has three rates of tax for popcorn, is just window-dressing, the former Union minister added. The need of the hour is a radically simplified and less punitive GST 2.0, he said.

"The first objective of GST 2.0 must be to simplify the tax slabs. The three-slab tax system for popcorn and the differential tax rates for cream buns and regular buns are only the tip of the iceberg," he said.

As the Narendra Modi government's former chief economic advisor, Arvind Subramanian, has acknowledged, the Goods and Services Tax (GST) has up to 100 different rates, including cesses, the Congress leader pointed out.

"This complexity increases the compliance burden on businesses and the government bureaucracy. The multiplicity of rates has facilitated alarming GST evasion of Rs 2.01 lakh crore, almost double the Rs 1.01 lakh crore reported in FY23," he claimed, adding that "18,000 fraudulent entities have been uncovered; many more are likely undetected".

The complexity of the current GST regime reflects a lack of seriousness on the government's part to enforce a truly "Good and Simple Tax", Ramesh said.

"Second, a key issue in recent months has been the slowdown in GST net collections due to high refunds. Data from December 2024 showed that net GST collections, after adjusting for refunds, slumped to 3.3 per cent growth partly due to the 45.3 per cent increase in refunds to taxpayers," he said.

While some part of this increase in refunds is certainly credible, a significant component of these refunds is likely fraudulent, he claimed.

"The complexity of the GST system -- especially when combined with a software system that is ridden with loopholes -- has allowed for large-scale fraud," the Congress leader alleged.

Input Tax Credit (ITC) fraud is particularly common, with more than Rs 35,132 crore worth of fraud identified, amidst a recovery rate of just 12 per cent, he noted.

Weak supply-chain tracking means that buyers can claim ITC without receiving supplies, often using false invoices or inflating turnover to secure fraudulent refunds, Ramesh said.

"Minimal validation and the lack of physical checks during online registration also enables the creation of fake companies who seek refunds without actual operations. Firms have also claimed refunds on exports that are ineligible for such benefits," he said.

The inadequate enforcement mechanism for GST needs to be one of the key targets of any reforms, the Congress leader said.

"Third, the government must reduce GST on several key items. For instance, GST is charged on educational textbooks and stationery, including uniforms, schoolbags etc. A punishingly high 18 per cent tax is charged on the affiliation fees paid by a college to a university and on open-distance learning courses, which are critical to enabling widespread educational access," he said.

These high GST rates reflect the increasing imbalance of the Centre's tax revenues, away from direct taxes to regressive indirect taxes like the GST, Ramesh said.

This is the appropriate year for a GST 2.0 since the GST compensation cess is likely to meet its revenue targets later this financial year, the Congress leader asserted. The finance ministry, therefore, has a fiscal cushion to anchor the simplified GST, he added.

"The Indian National Congress had envisaged a GST 2.0 -- a truly Good and Simple Tax -- in its Nyay Patra for the 2024 Lok Sabha elections and remains committed to this vision. The ball is now in the Union government's court -- will they take this historic opportunity?" Ramesh asked.

His statement comes a day after Sitharaman said on Saturday that the GST rates will come down further and the work on rationalising the tax rates and slabs has "almost reached a finale".

She said the revenue neutral rate (RNR) came down from 15.8 per cent at the time of the launch of GST on July 1, 2017, to 11.4 per cent in 2023.

"It will come down even further," the minister added.

The GST Council, headed by Sitharaman and comprising her state counterparts, set up a group of ministers (GoM) in September 2021 to rationalise the GST rates and suggest changes in the tax slabs.

The GoM comprises the finance ministers of six states.

Responding to a question at "The Economic Times Award" on whether it is time to rationalise the GST rates and slabs, Sitharaman said "that work has almost reached a finale".

"Now, at this stage, there is one more look that I would (take). The groups (GoM) have done excellent work, but I still have taken it upon myself to once more completely review each of the groups' works and then probably take it to the council to see if we can come to a final conclusion on this," she said.

Sitharaman added that some more work is required on rate rationalisation.

Later, Ramesh shared on X the translation of a news item on GST being imposed on temples by Tamil daily Dinamalar.

According to the translation shared by Ramesh, the temples that generate revenue under the Hindu Religious & Charitable Endowments (HR&CE) Department have now been subjected to GST.