GST rate changes: Consult the public

The people do not have a vote on the GST Council, but surely they deserve a space to voice their views.
For representational purposes only
For representational purposes onlyFile photo
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4 min read

Timing matters in politics and for public policy. On November 29, India was informed that GDP growth had slid to 5.4 percent. On December 2, even as the GDP shock was being absorbed, headlines screamed an increase in the goods and services tax on items ranging from tobacco and aerated drinks to nearly 150 products. Many of the items are considered necessities of middle class life and consumption, and the proposed hikes based on price points triggered public ire. It was as if the fuse of mass angst was lit. It sparked visual and textual expressions of outrage on social media.

The saga merits detailing. From its inception, the GST template has been riven by multiple rates—nearly three-fourths of the revenue comes from the 18 percent slab—and confounding definitions. On July 2, the GST Council constituted a Group of Ministers on rate rationalisation—including ministers from Rajasthan, Uttar Pradesh, West Bengal, Kerala and Karnataka—convened under Samrat Chaudhary, Deputy Chief Minister of Bihar.

The GoM is said to have recommended a slew of changes in the rates, beginning with a 35 percent slab for ‘sin goods’. The proposals included raising GST to 18 percent on products priced between Rs 1,500 and Rs 10,000, and 28 percent for goods priced above Rs 10,000. For instance, the GST on wrist watches priced over Rs 25,000 was to be hiked from 18 percent to 28 percent, and shoes costing over Rs 15,000 would attract 28 percent. Coinages and comparisons, including memes on GST rates for luxury electric vehicles and regular cars, punctuated the narrative. Indeed, the Clothing Manufacturers Association warned the rise in rates would lead to a loss of 1,00,000 jobs.

The furore catalysed a clarification. A day later, the Central Board of Indirect Taxes and Customs tweeted, “Reports in public media on the basis of GoM deliberations are premature and speculative.” The CBIC added that the GST Council had not deliberated on changes as it is yet to receive the report from the GoM. Interestingly. members of the GoM are yet to speak up. Suffice to say that the recommendations seem to be in play even if the decision awaits the December 21 GST Council meeting in Jaisalmer.

The “recommendations” symbolise a misalignment, the fault lines in the understanding of the state of the economy. Consider the state of play here. It is no secret that entry-level products from consumer goods to 100-cc bikes at the frontier of pricing have struggled—this has been explained away as “premiumisation” by some analysts. Be that as it may, data shows that urban consumption is waning and is propped up by demand at the top-end, big-ticket economy. The logic of pushing GST rates higher in a landscape of falling demand is mystifying, to say the least.

The outrage among taxpayers effectively signals the need for greater transparency and public consultation in the process. To start with, the GST Council must communicate what the defined objective of the rationalisation is. Is the objective simplifying the system or higher collections? In the past, the government has claimed that GST has enhanced tax buoyancy. While the GST Council has ceased publishing data on collections, news reports show that November saw gross GST collections, at Rs 1.82 lakh crore, growing at 8.5 percent.

The quest for rationalisation raises critical questions. Is there a target for growth in GST collections and how is it aligned to economic growth? Is there a study or an estimate of potential at particular price points? Or is the quest for higher collections driven by the cost of meeting the price of populism? The answer is located in the fiscal stress faced by states. The capital expenditure of state governments is lower than the target, and revenue expenditure is rising—thanks to the array of sops announced in the run-up to elections—enabled by the flow of GST revenues and the facility of direct benefit transfers. Just the tag of cash transfers to women costs state governments over Rs 2 trillion.

Do stakeholders have a say? It is a moot point if the process of GST Council GoMs allows for representations, at least on tax rate proposals. For instance, the standing committees of parliament allows for representations and submissions on a wide range of issues that are under deliberation of the members of parliament. There is also the provision for study groups. What’s more, the committees make the representations public. If the parliament of India can accommodate voices, why would the GST Council shy from inducting views?

Indeed, the decision tree of GST rate determination—from the GoM to GST Council approval—can do with some space for stakeholder feedback. For instance, the Union budget is made public and comes into force only after a public debate and deliberations by the MPs who vote on it. The process allows the government to make crucial course corrections on tax proposals or on definitions following public and political response. Similarly, the GST Council could first make public the rationale and recommendations of the GoM, and allow for a fortnight or so for feedback. There is both convention and a case for the GST Council to allow wider public consultations, induct submissions for consideration before adoption of the proposed changes.

The people do not have a vote on the GST Council, but surely they deserve a space to voice their views. 

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