There could be many changes to the very structure of GST in the run up to general elections

The 32nd meeting of the GST Council held recently will go down in history for paving the way for the GST to transition back to the chaotic state VAT era. The very purpose of having GST in the first place was to remove the non-uniformity in tax rates, regulations, procedures which were in force in the states’ VAT laws. Also, at the Central level, excise duty levied on manufacture of goods and service tax levied on provision of services was combined into “supply of goods and/or services” , and one common law was enacted which was uniformly applied on supply of goods and/or services.

Having already compromised on the global best practice of having one national GST where only a single GST is levied across the country rather than a dual GST, it was a natural expectation that the structure of the dual GST be kept simple and uniform across the country. In fact, the states were promised a compensation of the likely loss, subject to them maintaining the uniformity in SGST rates, procedures, rules, etc. While the Centre may succeed in doing so in the first five years of the GST implementation, and thus keep its promise, there is no guarantee that the states won’t resort to making changes to their respective state GST laws and regulations. What transpired at the 32nd GST Council meeting was unbelievable. The threshold for registration (in case of non-special-category states), currently at `20 lakh and common for supply of goods and/or services, has been proposed to be doubled to `40 lakh—that too only in case of supply of goods. While the changes required to the CGST Act and the State GST Acts are awaited, it would be interesting to see how a person supplying both goods and services is subject to the new threshold. It is exasperating to note that some states have been given an option to decide the registration threshold for supply of goods in their jurisdictions, ranging from `20 lakh to `40 lakh. We might end up in a situation where, in state A, the limit is `40 lakh, while it’s neighbouring State B has a `25-lakh threshold.

The next decision of the GST Council was to approve a levy of calamity cess of upto 1% on intra-state supplies made in Kerala for a period not exceeding two years. While the entire nation has sympathies for the people of Kerala, rather than resorting to a levy of calamity cess, the Centre should facilitate a direct relief package where every state can contribute according to its ability and willingness. Contribution by individual states should be matched by equal contribution by the Centre. If this such a precedent is set, it will further boost co-operative federalism, and our states would be convinced fully for raising of funds for any future unprecedented calamities. Levying a cess on intra-state supplies only in the calamity-struck state itself is a calamity!

The GST Council also proposed changes to the GST composition schemes. The GST composition scheme that was hitherto restricted only to suppliers of goods has now been extended to service-providers. The suppliers of services (or mixed supplies) having a turnover of up to `50 lakh in the previous year will have an option to pay tax under composition scheme @ 6%. This was never the case in the erstwhile service tax regime. The service-providers, small and big, were more than happy to comply with the service tax law. What made the smaller service-providers ask for a composition scheme? The answer lies in the fact that the tax compliance requirement was relatively easy in the erstwhile service tax regime wherein a registered service provider had to file only two bi-annual returns, although payment of tax was done on a monthly/quarterly basis depending on the threshold limits. The complex GST-returns structure and procedure has led to these demands from the smaller service providers and, hence, to the GST Councils’ decisions that further add to the complexity of the GST structure.

On the revenue front, the GST Council has decided to keep further rationalisation of the GST rates in abeyance till such time the GST revenues rise. It is a universal truth that simpler the tax structure, better the compliance and hence better the tax revenues. Off late, GST revenues have not been upto the expectations of the policy-makers as they have been consistently falling short of the target. It seems that introduction of e-way bills, TCS and TDS mechanisms and other complexities haven’t helped much the cause of revenue augmentation. Detecting tax evasion and realising the tax due would take some time, and it is imperative that till such time, the GST Council stays patient and does not further complicate the GST structure.

The GST Council seems to be moving away from the simplicity canon of GST, and the pressure from the state representatives in the GST Council ruled by different parties is shaking the very foundation of the GST. With parliamentary elections scheduled in a couple of months, the writing on the wall is clear. Brace for many such tweaks to the very design of the GST that took over a decade to see the light of the day!