The Goods and Services (GST) Council has effected a major tweaking of the rates of many items more than a year after the introduction of the new tax regime. It has now cut the tax rates on 17 items and six services, leaving only one item of common use - cement - in the 28% tax bracket. Till now, a large number of changes have been made in the rates in the case of individual items but this is the first time so many revisions have been made at one go. Rates have been reduced on items like television, camera, video game console and movie ticket. Though frequent demands have been made for reduction of rates, there was reluctance to accept them because of the revenue loss involved. A cut in the tax on cement has been withheld on the same consideration, though this may be reviewed in future.
The items which were removed from the 28% to 18% tax bracket and have therefore become cheaper are those which are mostly used by the middle class. The political intention behind the decision is clear and it may be taken as the beginning of the coming pre-election doles. The last time a major tweaking was done was before the Gujarat assembly elections. The rate cuts are estimated to have a revenue impact of about Rs 5,500 crore in one year at a time when the GST revenues have not stabilised. But rate reductions are generally good in the longer term because they will lead to increased demand and consumption and will be positive for the economy. They will also foster better compliance.
The move to simplify the filing of returns is in the right direction. Simple procedures improve compliance and make the tax administration more efficient. The creation of a centralised authority, which has been planned, will help put an end to the confusion caused by divergent and sometimes contradictory rulings given by state authorities. All this shows that the GST system is still a work in progress. The reduction of rates has not meant their rationalisation. There are too many tax slabs and the system is much more complex than the systems that exist in many other countries. The tax rates are also generally higher than in most other countries. So a lot more effort is needed to achieve the aims of the GST system. The promise to effect merger and unification of two tax slabs is welcome. The reforms have better reasons than politics and elections. So it is unfortunate that they are undertaken more with an eye on drawing mileage by pleasing some sections and catering to particular interests.
