Don’t let states and lobbies abuse gst

Don’t let states and lobbies abuse gst

The ongoing protest by traders in the textile hub of Surat and Ahmedabad against the imposition of a 5% goods and services tax (GST) on textiles is unjustified, given that the new levy allows manufacturers to claim credit for all the taxes paid on inputs, and lowers production costs. There is no rationale to exempt some sections from GST as it leaves the scope for others to make a similar demand. Already, 145-odd products are exempt from GST. The goal should be to remove these, not to add to the list. It will distort the tax structure, create systemic inefficiencies and dent governments revenues. The GST Council should stand up to the demands for commodity- or industry-specific exemptions that spell patronage.
Estimates show that the country loses about 2.7% of the GDP on exemptions.
Many food items have now been exempt from GST to ostensibly soften the blow on the poor. But an exemption should not be conflated with zero-rating, given that no input tax credit will be available to manufacturers of exempt items. Zero-rating is applicable only to exports under GST: a country does not export its taxes and, so, exporters are allowed to claim a refund on the input taxes paid by them. Barring exports, all products and services should attract a nominal levy in order to keep the GST chain intact. The GST Council must also try to tax products sharing a common HSN code at the same rate, to minimise classification disputes.
Large swathes of the economy — petroleum and real estate —should be brought under GST that creates audit trails to lower rates. States should abandon moves like Tamil Nadu’s, of slapping an additional levy on movies over and above GST. The need is to move to a clutter-free tax system, now that GST has been rolled out to create a common market.