The Modi government recently reduced GST rates on a range of goods. Also, it ought to reduce the number of GST slabs as was being demanded by many including Rahul Gandhi.
I demur.
What is the rational for having less number of GST rates? We may have 100 different rates even running into decimals. It could all be dependent just on the HSN code and fed into the computer where it would be updated from a central website. Such that on making an invoice, the GST rate applicable would automatically be selected. What is the problem in having that? Nothing.
The problem is not having multiple GST rates. The problem is when the same product can be sought to be classified as one or the other in order to escape higher GST rates and to try to sneak into a lower slab. This gives incentive for dishonesty and ultimately puts the honest manufacturers in a position of disadvantage. The solution to this is to look at which products are susceptible to this kind of jugglery and to do the needful so that GST rate evasion is no longer an issue for that category of products. There are many products for which evasion is just not possible or too difficult because by their very nature, those products are being produced in the highly organised sector only. Let us say television or vehicles. These should be subjected to high GST rates in order to get revenue for the government. On the other hand, take a product like the humble maska bun. There was a seminar with our respected finance minister in South India and a trade representative came up and told that he owns a restaurant and there are different GST rates depending on whether it is a plain bun or a butter maska bun or muska ban with jam in it. Now, such a scenario is nothing but a recipe to invite tax evasion. So it would be smarter for the government to forego their revenue and to have minimal or rate of GST on these things. Have minimal or rate of GST on products which are being produced in such a decentralised way that it would be impossible to regulate or it would be counter-productive in that the government would have to create an extreme license Raj with its tentacles in the smallest towns in order to enforce rules. Why not just take money from the big manufacturers and leave the other product categories out of the GST ambit?
The government does need to do the needful to ensure that cases of inverted duty structure which compel industry to seek GST refunds are nullified or minimised. These are cesspools of corruption. It can tweak the duty of the final products accordingly again. That means that it cannot adhere to the concept of having a very low number of GST slabs.
The government can also have the concept of having certain cash cow products as such that it’s GST can never be claimed unless the customer is making some valuation and selling it effectively as the same or as a very similar product. For example, if I buy cement for my construction of my new office, then I cannot claim the GST on it. Government should strengthen these rules. Also, it should ensure that these rules are not circumvented by the manufacturer of that product using it in-house. For example, if the manufacturer of cement uses his own cement to make his own office building, he should be compelled to pay GST as soon as the cement was manufactured, as it should be treated as a sale, though it was used in-house. This will put a stop to big end-to-end, conglomerates misusing this provision.