The GST council has decided to reduce rates on 88 items which include TV, Washing Machines and Refrigerators down from 28% to 18%. It is the fifth round of rationalisation of the rates. Revenues from GST are going up- from Rs. 90,000 crore last fiscal to the Rs 103, 00, 000 Crore in April this year and that accounts for the fact that monthly returns are not mandatory and that quarterly returns will do for business turnover up to Rs 5 Crore. The tax cuts amount to a fiscal stimulus which will boost private consumption. The fiscal stimulus will also mean that the cuts in GST rates will be more than offset by increase in private purchases prompted by increased consumer spending. The levy of 28% on a building material like cement is however far from justified. It appears that the Council has been prompted by fears of a significant revenue loss to take this step about an essential material like cement. What has been overlooked is that a reduction in the GST rate on cement would have been offset by transactions of higher volumes.
In the next one year, the GST Council should aim at lowering the tax rate from the 18% slab to 16% if the optimistic 15% is not readily achievable. The slabs should be broken down from five categories- 0, 5, 12, 18 and 28 to three. Besides, there should be cuts of 0.25% for rough diamonds and precious stones and 3% for gold and silver. What seems encouraging is that GST has proved to be reformative. But there will be much to be desired unless the issues mentioned above are not suitably addressed.
Besides the above, there are significant of small and medium businesses in the rural outback of this country that are not digitally robust. Not much has been done to reduce the plight of this section which has to rely heavily on the tax assistants who are making a killing at these times. Government needs to devise means to bridge the digital divide between rural and urban India to make the GST a successful and sustainable reforms process.