Foodgrain likely in GST net soon

Items such as foodgrain, which earlier attracted purchase tax under the value added tax (VAT) regime, may now be brought under the goods and services tax (GST) net.

The officers’ committee on revenue augmentation is examining the feasibility of imposing the GST on such products on the basis of reverse charge mechanism. Through this route, registered entities can pay the GST on behalf of unregistered players.

“The idea was to go with the revenue neutrality principle in the GST. However, now after so much of rate reduction in the GST, there’s a situation where the GST rate is lower than the rate in the pre-GST regime. There were items, like foodgrain, where purchase tax was paid by wholesale traders, but it is completely exempt now,” said a government official. He added that tax could be imposed on those items through reverse charge mechanism (RCM).

Meanwhile, the committee is looking at tweaking rates in the composition scheme and introducing RCM there to avoid evasion.

Composition scheme allows a flat tax rate and simplified return filing under the GST.

“We can look at ways where composition tax rate can be rationalised, besides having a reverse charge mechanism to avoid evasion,” said another official.

Revenue collections fell to a 19-month low in September at ~91,916 crore, 2.67 per cent lower than the corresponding month last year and 6.4 per cent lower than ~98,202 crore in August. This prompted the government to constitute a committee of officers to discuss ways for revenue augmentation.

The 12-member panel, which has five officers from the Centre and states each, is also looking at issues such as systemic changes in G ST to prevent misuse, measures for expansion of tax base, improved compliance monitoring and anti-evasion steps using better data analytics and administrative coordination.

Pratik Jain, partner, PWC India, said if reverse charge mechanism was widely applied, it would dilute the overall GST framework. “Food grain was exempt under VAT in most states, whereas purchase tax was applicable in Punjab and Haryana (which had to be paid by the purchasers).’’

Purchase tax was subsumed under GST and it was clearly stated so, he pointed out. “Therefore, I don’t see a rationale of having these products under GST, either under a normal mechanism of by way of reverse charge.”

The government also wants to collate GST data with customs and income tax to identify evasion.