GST: Course correction

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Bikky Khosla | 14 Nov, 2017
In a big relief to India Inc, the GST Council last week slashed tax rate on 178 items from 28 percent to 18 percent. Consumers will heave a sigh of relief as well. Now, only 50 items, classified as sin or luxury goods, are left in the highest tax slab. Earlier this month, Prime Minister Modi had given an indication of this move, saying that further steps would be taken to address the problems facing businesses and traders under the new tax regime, and finally some sweeping changes were approved by the Council last week. These decisions will take effect prospectively from November 15.

Rigours of compliance being faced by small and medium enterprises (SMEs) is definitely one of the major issues that gave GST a bad name, and to address it the Council has now decided to bring more such business units under the composition scheme, by cutting the tax rate allowed under it to 1 percent of turnover. Additionally, eligibility threshold for the scheme has been raised to Rs 1.5 crore from Rs 1 crore now. Definitely, these steps will give a much-needed relief to our small businesses, which have been suffering the brunt of the new tax regime.

There is little doubt that GST, introduced in July 1, began on the wrong foot. The early version was probably better than the indirect tax regime it replaced, but high tax rates and onerous compliance requirements made life extremely difficult particularly for SMEs, messing up their working capital cycles. In this backdrop, the new version of GST is welcome. The Union Finance Minister claimed the rate adjustment was part of an ongoing rationalisation exercise, while sceptics viewed that the move was driven by fear of a voter backlash, but either way, the Council has done a good job.

But there are still a lot of issues that need attention. GST was meant to ease the rules for businesses, but this objective is still far from being achieved. The GST network itself is a huge inconvenience. The filing process could be made user-friendly, there are glitches to address. Several decisions announced in October have not been implemented efficiently. A lot of works are yet to be done to widen the coverage, cut number of tax slabs and decrease rates. Most importantly, a climate of mistrust still exists, and the government must work on a war-footing to nip it in the bud.

I invite your opinions.