The all-powerful GST Council meeting Wednesday decided to hold on to existing GST rates and slabs. That the meeting happened at a time when revenue collections have been lower than expected and GST compensations to states have been stuck had us to believe that the council would go for an upward revision in GST rates and slabs. Self-admittedly, the Centre is under pressure on the revenue front. GST collections in the current financial year have undershot the target. The actual collection during April-November stood at Rs 3,28,365 crore as against the budgeted Rs 5,26,000 crore — a hefty 40 per cent fall in collections. The shortfall forced the Centre to delay releasing compensations to states. However, facing heat from the states for delaying payments, the Centre early this week released Rs 35,298 crore to some states and Union Territories. Among others, Odisha has received Rs 1,046 crore. Considering that this payment was owed since August 2019, the amount released was too little and too late. The freeze in GST release to states has dampened spending, leading to a further squeeze on demand.
At the time of GST rollout, states had been promised compensation at 14 per cent to make up for the loss in revenue on account of the taxes subsumed into the new indirect tax regime. States had surrendered powers to collect taxes on goods and services after local levies got subsumed into GST. They were guaranteed through a Constitutional amendment that they will be compensated for any revenue loss in the initial years of GST implementation. However, the Centre has committed a sovereign default. The government has set a monthly target of Rs 1.1 lakh crore in GST revenues over the next four months. Union revenue secretary has asked officials to raise tax collections.
Ahead of the meeting Wednesday, economists pooh-poohed the idea of a raise in GST slabs. Any raise in taxes would have surged inflation, dealing a blow to economic growth, which is already reeling under pressure. The GST Council has chosen to play safe. It desisted from tampering with the rates, except for recommending a uniform rate of 28 per cent on lotteries across the country. In a welcome move also, it has decided to extend the annual date of GSTR 9 filing to January 31, 2010, and waive late fee for all taxpayers who have not filed GSTR1 from July 2017 to November 2019. But the council has increased the tax rate on woven and non-woven bags from 12 per cent to 18 per cent. Exemption has been given on long-term lease for industrial plots to facilitate setting up of industrial parks.
All said and done, the GST Council meeting has not added to the tax burden, which should be welcomed. But the government should do more on GST. We would expect the council would simplify the GST system and structure. One way of doing it is by consolidating the GST rates into fewer slabs. Going forward, the council should focus more on revenue realisation by addressing areas of revenue leakage rather than increasing the tax burden. Efforts should also be made to improve efficiency of the system by making the most of technology. The government is reportedly considering the easing of personal income tax in the coming budget. The purpose is to leave more cash in the hands of taxpayers. This being so, any attempt to further raise the tax burden on people would have been counterproductive.