Con­sump­tion trends, pop­ulism be­hind GST cuts

In the past 13 months, the goods and ser­vices tax has also helped in im­prov­ing col­lec­tions, giv­ing pol­i­cy­mak­ers room to cut rates THE EVOLV­ING STRUC­TURE OF GST

Mint Asia ST - - News - BRY EMYA N AIR & G IREESH C HANDRA P RASAD ·························

Over the past 13 months, the goods and ser­vices tax (GST) Coun­cil has ef­fected tax cuts on 384 goods and 68 ser­vices un­der the in­di­rect tax sys­tem.

The to­tal es­ti­mated rev­enue loss to the ex­che­quer from the rate cuts was pegged at ₹ 70,000 crore, ac­cord­ing to the govern­ment. Mint analy­ses the rate cuts.

Con­sump­tion pat­terns

The rate cuts re­flect the chang­ing con­sumer be­hav­iour. Items that were ear­lier con­sid­ered a lux­ury, such as re­frig­er­a­tors and wash­ing ma­chines, are now a ne­ces­sity for mid­dle class house­holds.

Fear­ing a huge rev­enue gap un­der GST, the Coun­cil had ini­tially in­cluded most con­sumer durable and per­sonal use items in the high­est tax slab. So re­frig­er­a­tors, wash­ing ma­chines, tele­vi­sion sets and sham­poos were taxed at 28%. In com­par­i­son, these items at­tracted over 30% tax in the ear­lier tax regime, which com­prised ex­cise duty and value-added tax. GST SLAB (in %)

How­ever, as rev­enues sta­bi­lized, the Coun­cil looked to evolve tax cat­e­gories that would re­flect con­tem­po­rary con­sump­tion trends, and in­crease con­sump­tion de­mand.

After the re­cent round of tax cuts, the ma­jor­ity of items in the 28% cat­e­gory are lux­ury items such as big cars or sin goods such as to­bacco, pan masala and aer­ated drinks. The other items in the high­est tax slab in­clude ce­ment, air-con­di­tion­ers and big screen tele­vi­sion sets. The govern­ment is con­sid­er­ing low­er­ing the tax rates on these items as well.

Pop­ulism

The first big step to re­duce tax rates was in Novem­ber 2017, just be­fore the as­sem­bly elec­tions in Gu­jarat and Hi­machal Pradesh. Tax rates were cut on 177 items, in­clud­ing food, per­sonal groom­ing, con­struc­tion ma­te­rial, wood and rub­ber. The re­cent re­duc­tion comes months be­fore three Bharatiya Janata Party (Bjp)-ruled states, Ra­jasthan, Ch­hat­tis­garh and Mad­hya Pradesh, go to polls. States ruled by op­po­si­tion par­ties have been com­plain­ing that the fre­quent rate cuts un­der the GST are just a pop­ulist mea­sure and are hurt­ing rev­enues.

Rev­enue buoy­ancy

GST has helped in im­prov­ing col­lec­tions with tax buoy­ancy pegged at 1.2, giv­ing pol­icy mak­ers more room to cut rates. The Union and state gov­ern­ments col­lected ₹ 94,016 crore by way of GST in May (for April sales), which was bet­ter than the ₹ 89,885 crore monthly av­er­age in the pre­vi­ous fis­cal.

Ac­cord­ing to a govern­ment anal­y­sis of the past five-year rev­enue trend, May re­ceipts for April sales rep­re­sented just 7.1% of an­nual tax col­lec­tion re­ceipts, which in­di­cated a promis­ing start for the year. In June, the col­lec­tion im­proved to ₹ 95,610 crore. E-way bills en­forced na­tion­wide for ship­ment of goods is ex­pected to aid the growth in rev­enue col­lec­tions. GST is also help­ing to curb eva­sion of in­come tax, as the tech­nol­ogy-driven sys­tem makes it dif­fi­cult to un­der­state sales.

Con­ver­gence

While po­lit­i­cal and rev­enue com­pul­sions forced the govern­ment to go in for a five-slab tax struc­ture un­der GST, the even­tual goal was to have fewer tax slabs to make the sys­tem sim­pler. This is pos­si­ble by con­verg­ing the 12% and 18% slabs, be­sides keep­ing the high­est slab lean or do­ing away with it en­tirely.

re­mya.n@livemint.com

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.