Chandigarh, July 9: Punjab Chief Minister Capt. Amarinder Singh has written to the Prime Minister seeking a review of the GST tax rates from the point of simplification, and urging him to ensure that GST is set right to mitigate if not fully remove, difficulties being faced by trade, business and industry in the country.
In his DO letter, the Chief Minister has urged Prime Minister Narendra Modi for quick redressal of some key irritants in the GST in the spirit of cooperative federalism.
Capt. Amarinder Singh pointed out that GST was a reform in which the country as whole and political parties, irrespective of their affiliations and beliefs, had come together for national good. Despite reservations and individual detriment in certain areas, the States have supported all the initiatives for reform and simplification of our century old archaic tax system.
Among the key expectations from GST were simplification of the tax laws and processes, GDP rise, moderation in prices and boost to the tax revenues. Somehow, the experience of the last one year has been more bitter than sweet, added Captain Amarinder Singh, stressing the need to try and work towards a perfect GST to celebrate this major reform in a true sense.
Noting that the experience of the last one year showed many drafting and structural deficiencies in GST laws, the Chief Minister said innumerable deviations made from standard provisions elsewhere had introduced tax distortions. Successive reports by the committees constituted by the GST Council had recommended many important changes, he said, adding that as per his understanding, the Law Review Committee, comprising both the Central and State Government officials, had proposed nearly 200 changes. There were significant changes necessitated in key provisions that form the heart and soul of the GST, he said, underlining the need to take them up for immediate wider stakeholder consultations and then processed for early legislative approval.
Likewise, multiple tax rates have invited wide criticism even if these have been justified in some circles on grounds of vast income disparity in India, said the Chief Minister, recalling that the Prime Minister had himself been quoted that Milk and Mercedes cannot have the same tax rate. Many global experts feel that single rate has far greater advantages and the poor should be compensated through direct benefit transfers so that the rich are not benefitted from these concessions, he added.
The Chief Minister cited examples from day-to-day life of multiple taxes for many goods that had very little to distinguish from each other. While GST on Milk, cream, butter milk, curd or lassi and bread, GST had been levied at 5% on Sweetening and UHT milk, Milk remains after the formation of curds, Chhena or paneer in unit container, Cashew nuts, walnuts, raisins and chestnuts, Mango dried and sliced and Pizza bread. Similarly, 12 % GST was being charged on Condensed milk, Cheese, Almonds, pistachios, brazil nuts and dates, Figs dried and preserved, while 18 % GST was levied on Ready to eat packaged food, milk containing edible nuts with sugar or other ingredients and garlic bread.
There was a strong rationale to review all tax rates from the point of view of major simplification which shall also curb evasion and leakages, said the Chief Minister, adding that the basic principle should be that goods of overlapping nature, close substitutes or goods capable of misclassification should not be subjected to differential rates.
Expressing concern that GST revenues had not shown the kind of buoyancy that was expected,
Capt Amarinder said this was worrisome not only on the account of the impact it would have on the precarious financial position of the Governments but also the restraint it would place on the government expenditure and consequentially social justice and development.
The Chief Minister pointed out that the revenue for the month of June, 2018 i.e. nearly one year after the GST came into force remains nearly the same as in the first month (Rs 95,160 cr vs 93,590 cr). Adjusted for nominal increase in GDP (at current prices) of even 10% the effective revenue was actually much lower over the last year, he noted. The Chief Minster further said that he understood even this revenue was gross without reducing refunds. Net of refunds, the revenues reflect a far more grim picture.
These might also be a reflection of the fear that GST may have generated due to heavy compliance burden. This requires a wholesome look at the amount of taxes being paid by the small scale sector which he had been informed is making a meagre contribution, said the Chief Minister. Nearly 80% of the registrants were eligible for simplified composition scheme while less than 20% are actually availing its benefits, which shows that these dealers remain shy or even fearful of the GST law.
Apart from these concerns, Capt Amarinder Singh also informed the Prime Minister that full potential of GST would only be realized when the energy sector, comprising petroleum and electricity, were included in GST. Power constitutes 20-30% of the cost in many key industrial sectors, today coal-based captive power plants of large industries enjoy GST benefits, while the same benefit is denied to standalone power plants and also captive power plants operating with natural gas. He added he believed it was possible to include both these in GST without any major compromise.
The Chief Minister also mentioned that in the course of repairing some of the GST shortcomings, concessions and exemptions have been issued on varying dates. Most of them do not have retrospective effect. While matters relating to tax rates/ exemptions can be prospective, many others which were largely structural flaws needed to be reinforced from the starting date,he added.
Last but not the least, the Chief Minster revealed that there were many issues on the IT front which he felt should be addressed soon with a sense of urgency that has emerged after the initial glitches. “We should ensure that the proposed new return should be an example of simplification for rest of the world rather than a puzzle like before,” asserted Captain Amarinder Singh.