GST PEAK RATE @ 40% - TAKING COUNTRY FOR RIDE

[Dr. Sanjiv Agarwal]

What has changed in last few months that GST Council (GSTC) is said to have made up its mind to escalate GST's peak rate from 28% to 40% ? Perhaps nothing except the economic fallout of demonetization, adverse impact on consumption patterns and lower spending, lesser demand and dropping bottom lines. GDP at 7 percent !! Who is bothered except economists and politicians in power who want to make people feel that all right.

GST Council is meeting for two days on 4-5 March 2017, ahead of Budget session of Parliament next week, wherein draft laws are excepted to be approved and recommended to Parliament. The Parliament  is the legislative body and GSTC can only recommend. GSTC members had taken a well considered and conscious decision to have a four tier tax rate structure under GST, viz, 5, 12, 18 and 28% with room for 'nil'  or 'zero' rate and compensation cess.

Presently model GST law provides that there shall be levied a tax called central/state goods & services tax (CGST/SGST) on all intra-state supplies of goods and/or services... at such rates as may be notified by the central/state Government but not exceeding 14% (28% for both, CGST and SGST) on recommendation of the Council and collected in such manner as may be prescribed. This 14% is proposed to be increased to 20% (40% for both, CGST and SGST).

GSTC should infact desist to take such calls and work for the mandate it has in public and national interest only. If this is allowed, (and cess will continue), no major relief may be there in GST and gradually, GSTC is likely to shift more and more items in 40% slab. If at all 40% tax rate is being thought of, GSTC should be honest enough to enlist the items to which such a rate be subjected to in future. Simple because tax hike in future beyond 28% would require Parliament's nod as reason for this is unwarranted and likely to be misused. This is also going back on earlier promise that rate will not be increased beyond 28%. Even the revised model law stipulates this.

In a short span of few weeks, what has changed that the peak rate is being talked about to be enhanced to 40 percent.

It may be recalled that during the debate on Constitutional Amendment Bill in Parliament, opposition wanted a cap on GST rate and it was suggested that same would be included in law itself. 18 percent was being demanded as the highest rate of GST but now GSTC is talking of 40 percent. GSTC would be too happy to approve this as 50% of 40%, i.e. 20% goes to States and 20% to Centre. Both are happy and who cares for common man! It appears that GSTC members, who are also responsible for tax revenue and collection, asking for tax powers to levy GST @ 40% is nothing but absurd, ridiculous and a wild thought which opposition parties must not allow. Infact wise sense should prevail over the GSTC in not doing so. It should not be allowed just for the sake of enabling provision.

In all fairness, it should not be increased and if done, should be opposed tooth and nail by all stakeholders including apex chambers, professional bodies like ICAI, ICSI,  ICWAI and trade bodies. GSTC can not be allowed to take us for granted.