Don't tinker with GST rates: Amit Mitra to Sitharaman ahead of Council meet

West Bengal Finance Minister Amit Mitra
Ahead of crucial goods and services tax (GST) Council meet on Wednesday, West Bengal Finance Minister Amit Mitra in a letter to his Union counterpart Nirmala Sitharaman cautioned against tinkering with the rates, arguing that such a move would be “highly detrimental and hugely counterproductive amid stagflation”.

The letter comes at a time when the revenue augmentation panel of officers are expected to give a presentation on measures to boost GST collections.

“We should not in any way tinker with the rate structure or impose any new cess at a time when the industry and consumers are going through the most distressing times with ‘stagflation’ knocking at our door (stagnation accompanies by growing inflation),” Mitra said.

India’s GDP growth slumped to a six-year low of 4.5 per cent in the September quarter, while retail inflation shot up to a three-year high of 5.54 per cent in November.

Instead, the West Bengal FM recommended that solution of additional resource mobilisation lied not in tinkering with rate structure but in focusing on anti-evasion and fraud detection measures.

He said the GST Council should collectively find ways to provide relief to the industry so that they are able to tide over the present crisis. “This can be done through further simplification of GST processes and procedures so as to reduce the compliance cost, which in my view has gone up manifold under GST.”

The agenda paper for the GST Council meeting has listed down reasons for the slowdown in collections, blaming it on frequent rate rationalisation and rates going below than the 15 per cent revenue neutral rate recommended by former chief economic adviser Arvind Subramanian. 
Besides, higher exemption and composition scheme limits are listed as reasons impacting revenue. The need for re-looking at GST slabs arose as the cess collection under GST has fallen short of the requirement to meet states’ compensation requirements.

Mitra said the news reports on measures being discussed by the Centre had “set alarm bells ringing among the state governments, industry and common people”.

The measures listed in the reports highlighted by Mitra include reviewing the list of exempted goods and services so that some of them could be taxed, increasing the GST rate from 5 per cent to 6 per cent, and imposing cess on a number of luxury items whose tax rate has been brought down from 28 per cent to 18 per cent.

“…we are very concerned about these developments,” he said.

After plummeting to a 19-month low in September at Rs 91,916 crore, GST collection recovered to Rs 1.03 trillion in November, posting 6 per cent year-on-year growth on the back of festive demand. Despite that, collection is lower than the rate needed to meet the steep target for FY20. 

Countering the possibility of reviewing the exemption list of GST, he said the basic principle of exempting these goods and services was that they are basic to people and are consumed by predominantly poor and underprivileged people and at the same time have a very low revenue potential. The exemption list includes items like lassi, foodgrains, oilseeds, curd, meat, fresh milk, fruits, puffed rice, fish, puja samagri, raw silk, health care, education, etc.

“These items are integrally connected with the daily life of common people…If the government of India has any such intent, I urge you to desist for the sake of common people of our nation,” he said.

With regards to increasing GST rate slab from 5 per cent to 6 per cent, Mitra said most of the items in the category were goods of mass consumption, which cater to the basic necessities such as food grains, atta , pulses, tea, coffee, bread, coal, kerosene, life savings medicines etc.

“This move will be hugely inflationary and further worsen the existing macro-economic situation for common consumers,” said Mitra. 

On the proposal of imposing cess on luxury items that saw GST rate cut from 28 per cent to 18 per cent, Mitra said such a move would be regressive and would start a “dangerous trend of imposing cess on goods and services arbitrarily” as means to increase reenues in desperation rather than through well-thought-out logic. “We should avoid setting a precedent that will imperil the structure of GST in the future,” said Mitra.

Besides revenue augmentation measures, the Council will discuss issues like GST on lottery and review GST e-way bill system and FASTag implementation, new return system, integrated refund system with disbursal from single authority, electronic invoice. The proposal on creation of the Public Grievance redressal committee is also on the agenda.

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