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Jaitley signals further GST rate cuts, hits out against politicising tax reform

Union minister Arun Jaitley dismissed political charges that the tax rate rationalisation announced by the GST Council last Friday was designed to influence assembly polls in Gujarat.

business Updated: Nov 13, 2017 23:56 IST
Arun Jaitley,GST rate cut,GST rates
Union finance minister Arun Jaitley (PTI Photo)

Finance minister Arun Jaitley on Monday signalled further cuts in the Goods and Services Tax (GST) rates and appealed to businesses to pass on the benefit of the recent reductions to consumers.

“The tax rate rationalisation process will always continue. Already, you have a situation today where every taxpayer can say that he has a bigger market and more reasonable tax rates,” Jaitley said.

The minister, however, qualified that the rate cuts will be presaged on revenue collections and then went on to point out that the tax burden on most items at present is less than what it used to be.

In an interaction with the media, Jaitley dismissed political charges that the tax rate rationalisation announced by the GST Council last Friday was designed to influence assembly polls in Gujarat and defended the four-rate GST structure, saying that in a country like India, basic food items and luxury and sin goods cannot be taxed at the same rate.

The minister urged the industry to pass on benefit of the tax rate cuts to consumers. “This will also help bring down inflation,” he said.

Jaitley, who chairs the federal indirect tax body the GST Council, which also consists of members from states and union territories with legislatures, clarified that the relief measures and tax cuts that the Council announced at its 23rd meeting in Guwahati last week were part of an ongoing rationalisation exercise based on an approach paper that guides tax rate revisions in the GST era.

The Council’s decisions appeared to acquire a political hue as parties sought to link the Constitutional body’s policy response to taxpayers’ difficulties in the new regime with next month’s assembly election in Gujarat, where the main opposition party Congress and the ruling BJP are locked in a direct fight.

“This is juvenile politics to either link it (Council decisions) to elections or to political demands. Effectively today, almost all items in the goods category are better off today (in terms of tax incidence) than what they were prior to 1 July...The GST Council has been very pragmatic and flexible. We respond to market realities,” said the minister.

Congress vice-president Rahul Gandhi said the party would continue to fight for an 18% cap on the highest GST slab instead of the current 28%, and vowed that the party would get the job done “if the ruling BJP doesn’t”, Mint reported on Saturday.

“Those who are speaking of a single rate GST, have no understanding of the tariff structure. Tax rate on food items have to be nil, while items used by common man should be at the lowest rate of 5%. Obviously, luxury goods and sin products and items that are hazardous to environment and health cannot be taxed at the same rate,” the minister said.

Food items cannot be taxed at the same rate as a luxury yacht, he said.

Responding to the compliance burden of businesses, especially small and medium enterprises and exporters, the Council has allowed continuation of some of the pre-GST era incentive schemes and suspended till the end of the current year the rigorous invoice matching of suppliers and buyers and the reverse charge mechanism that makes big businesses responsible for tax filings for items sourced from smaller units.

“Once the system stabilises, some of the steps planned in the original design would obviously be nudged back into the system,” Jaitley said.

Experts believe that this has led to a situation where easing the pain of the industry has gained priority over the transparency and widening of tax base which were the original objectives of GST.

First Published: Nov 13, 2017 23:55 IST