Don't complicate GST

On Friday, the Goods and Services Tax Council, the body empowered to take final decisions with regard to the indirect tax regime, ended yet another meeting. While some important issues were resolved, there was also a fair amount of disagreement among the GST Council members. The good news is that the Council decided to further simplify the return-filing procedure. As against the present practice of filing 37 returns — three in each month and one annual — the new system will only require a monthly return, sharply reducing the onerous procedural issues. The transition will be a three-stage process and would take three to six months. Eventually, the system would stabilise to a set-up where no provisional input tax credit will be allowed for buyers, and input tax credit will be made available only when the seller uploads the invoice. This is an improvement over the existing process but it is possible that cash flows are affected if sellers fail to upload invoices. That will hopefully get resolved in the future, but the GST Council wrestled with far bigger problems as the meeting progressed.

The biggest bone of contention was a 3 per cent sugar cess proposed by Finance Minister Arun Jaitley and supported by representatives of Uttar Pradesh, Maharashtra and Bihar, states in which the BJP is in power. These three states will also be among the biggest beneficiaries of the proposed cess. Mr Jaitley argued that the cost of sugar has risen beyond Rs 35 per kg while the market prices still range between Rs 26 and Rs 28 per kg. As a result, sugarcane farmers are in deep distress. Reportedly, with sugar prices ruling below the cost of production, mills’ payment arrears to cane farmers stand at over Rs 200 billion. The proposed cess was predictably opposed by several states ruled by other parties. States not producing sugar have a point when they asked why a tax that benefits just a few states should be borne by everyone. 

The country is indeed going through agrarian distress. But a selective cess is not the way to go about redressing this. In any case, a cess for sugar, if agreed, could very easily open the floodgates for other politicians to ask for similar relief packages. This is a real possibility since India is moving into poll mode with just 12 months to go for the next general elections. Moreover, the imposition of a cess is a bad idea in the best of times. For one, its collections go only to the Central kitty, and not shared by states, and as such, a cess undermines cooperative federalism. It is even worse when one considers that it would be imposed under a GST regime. The whole point of the GST was to get away from such complications and carve-outs. Under the GST, there was to be no separate cess, barring the one on luxury goods, which is meant to fund the compensation for revenue losses of states. At a time when the number of tax slabs under the GST needs to be brought down further, adding another cess arbitrarily will only complicate matters. The sugar sector crisis is not a natural calamity; rather, it is a problem owing its origin to politically motivated high state-advised prices. Hopefully, the group of ministers formed to deliberate on this matter will choose wisely.

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