Coalition dynamics could reflect on GST council meet

Rate rationalisation, the topmost item among all, is unlikely to see any immediate change.
Image used for representational purposes only.
Image used for representational purposes only.Express Illustrations

The next GST Council meeting, to be held on June 22, will be a crucial one. Coming after a gap of eight months, the first meeting after the NDA government returned to office also comes in the backdrop of a reduced mandate for the BJP in the Lok Sabha. The meeting is critical as it’s expected to address several issues including review of GST rates on online gaming, bringing petroleum products, electricity, and real estate under GST, besides considering rate rationalisation. Conventionally, the Centre has one-third of votes in the Council while states have an upper hand, collectively holding two-thirds. This means states will have their say on policy decisions in any case. Still, some believe the Council may hit a deadlock on key issues as states sense a weaker Centre and the coalition government may mar its hand in pursuing reforms like before.

Rate rationalisation, the topmost item among all, is unlikely to see any immediate change. That’s because the Group of Ministers (GoM) appointed to consider the rate restructuring is yet to finalise its recommendations. Moreover, given the recent assembly elections, the GoM itself may see a restructuring. Currently, essential and semi-essential goods constitute 70-80% of India’s consumption, and attract a levy of 5-12%. The multiplicity of taxes has led to inverted tax duty classification issues leading to legal disputes; the Centre wants to reduce the current rates of 5%, 12%, 18%, and 28% into three slabs. Will this lead to a consolidation of the two slabs namely 5% and 12% or 12% and 18%? If so, analysts warn against rate tweaking as it could increase the tax burden of lower-income groups. 

The other critical aspect includes petrol and diesel that are excluded from GST, but are subject to VAT, central excise duty, and central sales tax. While the Centre imposes taxes on the base rate, states determine their individual rates. It comprises a significant chunk of their tax revenues. Given states’ high debt burden, particularly Andhra Pradesh, which happens to be home to the NDA’s key coalition partner TDP, it will be interesting to see how the Council navigates the issue. Perhaps it can begin with low impact petroleum products such as natural gas before considering a full-fledged rollout. As the tax regime turns eight next month, reforms process shouldn’t take a backseat.

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