COMMENT: Mini-budgets round the year as GST council takes charge of indirect tax changes
This is a marked departure from the past, when the central finance minister announced most indirect tax rate changes in the annual union budget
When finance minister Arun Jaitley stands up in Lok Sabha early next year to present the budget for 2018-19, it will mark the beginning of a new course in India’s annual accounting process. The National Democratic Alliance (NDA) government’s fifth and, possibly the last full budget in this term, will also be a breakout financial plan.
The roll out of Goods and Services Tax (GST) from July 1 has meant that the central finance minister will have very little discretionary powers in changing a jumble of indirect levies.
India is in the midst of overhauling its tax system by consolidating an untidy patchwork of local and central duties such as VAT, central excise, special additional duties, cesses and service tax into a single levy –GST—that seeks to make tax administration more efficient, bring in transparency, remove red tape and turn India into a common national market by removing fiscal barriers among states.
The GST council, chaired by the Union finance minister and ministers from states as its members, now decides on GST rates, implying that `Part B’ central budget speeches from 2018 onwards will not contain the long list of indirect taxes that the finance minister presents every year.
GST rates of several goods and services, which were first fixed in May, have been changed a few times already over the last two months. The union finance minister’s press briefings after each GST council meeting have been dominated by announcements on tax rate changes ranging from cars and raincoats, to rubber bands and hotels.
This is a vital variation from the past, when most indirect tax rate changes were announced in the annual union budget. The indirect tax changes made goods and services dearer or cheaper and had an immediate implication on household budgets.
So, millions of Indians often tune in to the widely anticipated budget speech, huddling around television sets in homes, offices and even tea stalls to get an idea about whether getting by was going to get harder or easier.
Not any longer.
Since May, when the rates were first fixed, the GST council has revised charges of more than 20 services and 50 goods already.
On June 18, it tweaked levies for the hospitality sector giving relief to five-star hotels. A 28 percent GST rate now applies for room tariffs of above Rs 7,500 a night from the earlier threshold (fixed in May) of Rs 5,000. Restaurants in five-star hotels are also taxed at a GST rate of 18 percent, down from 28 percent earlier and identical to stand-alone air-conditioned restaurants. The council also fixed two GST rates for lotteries—12 percent for government and 28 percent for government-authorised private draws.
On August 5, the Council rationalised rates of 19 services including textile jobs and government work contracts, cut taxes on certain tractor parts to 18 percent from 28 percent and approved e-way bill rules that removed check posts at state borders.
It also recommended raising maximum ceiling of cess on luxury cars, SUVs from 15 percent to 25 percent. In the same meeting, the GST rate on agriculture services such as post-harvest and storage was brought down to 12 percent from 18 percent. Similarly, the tax rate for entry into planetariums was reduced to 18 percent from 28 percent.
On September 9, the Council imposed differential cess on luxury cars, SUVs and sedans. It raised the cess on large luxury cars to 20 percent, SUVs to 22 percent and mid-size sedans to 17 percent from 15 percent for each of these categories, raising prospects of some types of premium vehicles getting dearer ahead of the festive season.
The council also cut GST rates of about 40 items. These include goods such as tamarind, roasted gram, custard powder, dhoop, agarbatti, raincoats, rubber band, corduroy fabrics, saree fall, and industrial diamonds among others. The rates were cut across all slabs: from 28 to 18 percent in some cases, from 18 to 12 percent for some items and from 12 to five percent for some other goods.
Moneycontrol has now learnt that GST rates of another 60 items are likely to cut in the Council’s next meeting on October 24.
The repeated rate revisions is emblematic of the rough edges that need continual ironing before GST, billed as India’s biggest reform initiative, reaches a steady state in an economy characterised by multiple pain points.
GST’s rollout has also implied that interest groups such as industry associations are seeking to make their voice heard more in the council, rather than in New Delhi’s North Block where the finance ministry is housed.
Until last year, finance ministry officials began consultations with stakeholders in October-November as chambers of commerce came armed with demands for tax breaks and fiscal sops. Tax changes were also carefully dovetailed to mirror the ruling party’s (or the alliance’s) political leanings, marrying ideology with economics in the union budget.But, with the GST council taking most of the decisions, the scene of indirect tax rate change action seems to have decisively moved away from Raisina Hill to the council’s secretariat.