A patchwork approach to GST problems (GST Council's recent decisions)

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 A patchwork approach to GST problems (GST Council's recent decisions)

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• Simplicity and transparency : These are the two strongest features of any tax regime, but despite the best of intentions, the GST Council's decisions are eroding both now.
• The first suggestion : Before GST arrived, the CEA Arvind Subramaniam was tasked with suggesting suitable rates. He suggested 15% for most items, and one rate up and one below.  (low rate for essentials, and high rate for demerit goods)
• What actually happened : The GST was launched not with 3, but with 5 tax slabs - 0%, 5%, 12%, 18% and 28%. And then came two more slabs - 0.25% for rough diamonds and 3% for Gold! Both these are specifically to benefit one region in India. And then came yet another rate of 1% for under-construction affordable houses. So instead of 3, we have 8 rates - a complete disaster for a tax system.
• One product, One tax : Yes, it is true that one product attracts only one tax rate all over India, but having 8 rates kills simplicity of the GST administration (a basic promise initially).
• Not even "One Nation One Tax" now : The special provision of 1% disaster relief cess for Kerala has divided Indian market into two - 

1. Kerala - with more expensive goods and services, and 
2. Rest of India. It is a bad precedent, as others will keep demanding it in future too. Then why do we have the NDRF or the state-level SDRFs?

• Transparency compromised : When the input tax credit provision was removed from the real estate sector, it was a direct hit on transparency and once again, in the murky real estate sector, we will witness more opacity.
• What is the ITC system? It builds a seamless chain in supply process, so companies can claim credits for taxes paid on inputs. By matching invoices, govts. can cross-check everything. Earlier, this was done for restaurants. For both cases, reason given was that prices were not falling fast enough.
• National Anti-Profiteering Authority : The Council should have handed this issue to the NAPA, but it did not. In parallel, cement is taxed at 28% and no offsets will be available!
• Go institutional, avoid patchworks : The GST Council is making some big mistakes in not following the institutional methods it has created. Tax administration will become tougher, not simpler.
• Summary : Recent changes to the GST system indicate a tax regime that is continuously becoming more and more complex and ad-hoc, rather than simple and institutional.

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