GST Council's rush job angers some FMs of Opposition-ruled states

Finance Minister Piyush Goyal
The impromptu rate cuts on a slew of items in the highest slab ruled the Goods and Services Tax (GST) Council meeting on Saturday, a day after the government defeated the no-confidence motion in the Lok Sabha. 

The unconventional approach to rate reduction in the first meeting chaired by Piyush Goyal since he took charge of the finance ministry seems to have irked state finance ministers of Opposition-ruled states.

They called the process “undemocratic, unpleasant, unfortunate and non-egalitarian”. Punjab Finance Minister Manpreet Singh Badal left the meeting midway. “The government has gone into election mode, and as a result they are in a rush now. That was the reason there was an urgency to reduce rates on items not listed on the agenda,” he told Business Standard

He said it was not a question about reducing rates but the process that needed to be fair and democratic. “The bottom line is that the process needs to be fair and democratic, or else we will end up making sub-standard laws.”

Badal wrote to Goyal on Sunday on the GST law amendments, saying the changes were being rushed without proper consultation.

Kerala Finance Minister Thomas Isaac, who could not attend the meeting for health reasons, was angry. He described the rate cuts as unfortunate and undemocratic and asked why tax cuts on “luxury” items were not opposed. “It is most unfortunate that GST Council without circulating in the agenda notes should decide to reduce the tax on 18 consumer durables like TV, fridge, etc from 28 per cent to 18 per cent disregarding consequences to revenue and equity. Undemocratic and non-egalitarian,” Isaac said in a tweet.

The move to reduce rates on consumer durables like refrigerators, televisions, and washing machines surprised even officials, who suggested to the minister that the matter be referred to the “fitment committee” first.

Conventionally fresh demands for rate reduction raised by states in the Council meeting are referred to the fitment committee, comprising state and central officials, who examine their revenue implications and then table them before the Council in the subsequent meeting.

“It was for the first time that anything and everything was taken up in the meeting, going beyond the agenda. In fact, some officials even objected to reducing rates in such a manner and suggested that the issue be referred to the fitment committee,” said an official.

Although some study was done on revenue implications of certain items, it was not a thorough one, the official said.

The rates were cut on more than 100 items, including refrigerators, washing machines and small-screen television sets, perfumes, cosmetics, vacuum cleaners, and shavers.

The fitment committee had examined rate reduction for paints, varnishes and cement, but had not recommended any cuts, considering the significant revenue implication that they might have. Hence, it was not part of the Council meeting agenda. However, the rate for paints and varnishes was reduced to 18 per cent from 28 per cent. Besides, 18-20 other items were taken up impromptu, and they were included in the agenda in the afternoon only. 

The rate for footwear with prices between Rs 500 and Rs 1,000 was brought down to 5 per cent after a last-minute request was made by Uttar Pradesh (UP).

“UP wanted rate reduction on leather footwear to 5 per cent. Since it was not possible to do it across the board, the rate was reduced to 5 per cent for footwear up to Rs 1,000,” an official said. Earlier, the reduced rate applied to footwear priced up to Rs 500.

Fewer than 40 items remain in the 28 per cent slab now. Union Finance Secretary Hasmukh Adhia was of the view till recently that the government would look at major restructuring in rates only after GST revenues stabilised.

“We are not going to do any major restructuring as of now… For that, our revenue flow should stabilise first,” he had said in an interview a few weeks ago.

Rough estimates show the exchequer taking an annual hit of Rs 80-90 billion on account of the latest rate cuts, which will come into effect on July 27.

"The relaxation of GST rates follows a slew of populist measures the government has taken to uplift the sentiment ahead of the upcoming state elections in Madhya Pradesh, Chhattisgarh, and Rajasthan in November-December 2018, the outcome of which will act as a prelude to the general elections in May 2019," said Dhananjay Sinha, head of research, economist & strategist, Emkay Global Financial Services.

ELECTION TILT?

 
Most items in the 28% bracket saw rate cuts that were not on the GST Council’s agenda: Refrigerators, washing machines, small screen TVs (up to 68 cm or 27 inch), vacuum cleaners, water heaters, hair dryers, hair curlers, scent sprays, paints and varnishes (including enamels and lacquers)

  • The proposal to recommend these to the fitment committee was rejected by Finance Minister Piyush Goyal
  • Opposition-ruled states have called the move ‘undemocratic and unfortunate’


Outbrain