THE UNFINISHED AGENDA
A consensus on GST rates. Congressrun states are pushing for a standard rate of 18 per cent. ‘Consumer’ states are keen on a rate above 16%, while ‘manufacturing’ states want it to be much higher A decision is needed on separate rates for different categories of goods and services—‘basic’ and ‘luxury’ The list of goods and services exempted from GST is proving contentious. Currently, some 300 items are exempted Finalisation of the rules and procedures of registration, invoicing and payment who has helped countries like Canada draft their own GST laws, explains: “Even for sectors that are not excluded from the GST, the government has imposed restrictions on credit available. For instance, input costs in construction are outside the purview of input credit. The sale of buildings— real estate, essentially—is also out of the GST. That includes factories, telephone towers, shopping malls... any immovable property. Any additional fixtures in that building, from lighting to elevators, will not be allowed for claiming input tax credit either.” The scale of the problem is quite large too. “If total investment is 30 per cent of the GDP,” he says, “one third of that is construction. If Rs 30 lakh crore is the total spending by industry and businesses, Rs 8 lakh crore was on account of construction. This has been kept out of the purview of GST.” Another contentious point has been raised by the automotive industry: firms are grappling with the varied baskets of tax being considered, specifically 40 per cent for luxury cars. There is some ambiguity on how ‘luxury’ has been defined, and also on whether policies that had been introduced by the states to bring in investment will continue.
While the Central government has assured the states of compensation for any revenue loss in the next five years, it will also have to be mindful of keeping a rate that is not too high to cover its revenue losses. A fervent pitch by Ajit Ranade of the Aditya Birla Group indicates the need to place a legislative ceiling on the indirect tax rate, to curb the tendency of future governments to quietly increase rates. “We have to get basic principles right,” he says. “Let’s not get carried away by the tax rate. Fix a low enough rate now and reimburse the shortfall.” Poddar cites the example of New Zealand, which began with a 10 per cent rate, which has now inched up to between 14-15 per cent, and also the fact that there are no exemptions. Australia, South Africa and Singapore do have some exemptions, but they are defined clearly to avoid classification disputes of this kind.
There needs to be a recognition of the fact that as transactions