Status quo: GST rates, structure to stay steady in near future; petroleum’s inclusion only after revenue gains show up
Policymakers aim to enhance fiscal relations and efficiency, monitoring state revenue trends. Future reforms, including petroleum product subsumption, will be considered once revenue growth from GST reforms is evident.
New Delhi: Central and state governments will retain the current framework of the indirect tax system and maintain the existing goods and services (GST) tax rates as they assess the impact of recent reforms on revenue collection growth before introducing further rate revisions or structural changes such as subsuming petroleum products, according to two people aware of internal discussions.
Nurturing Centre-state fiscal relations and stepping up revenue buoyancy through process efficiency will remain the focus of policymakers in the near future, one person said.
The central government will monitor revenue collection trends of the states in view of the concerns expressed during the GST reform deliberations last month by ministers from opposition-rules states. However, the Centre remains optimistic that improved consumption demand will make up for any dip in revenue collection due to the steep tax rate cuts, the two people said, speaking on condition of not being identified.
This means that GST rates will likely remain at current levels in the near future and taking up the unfinished agenda of subsuming crude oil, natural gas, petrol, diesel and jet fuel within the GST framework will have to wait.
The GST Council approved a comprehensive overhaul of the GST structure and rates at its 56th meeting on 3 September. It introduced two main slabs: a 5% merit rate for essentials and an 18% standard rate for most goods and services, effective 22 September.
“With the abolition of the 12% slab, the gap between the merit and standard rates (5% and 18%) has widened. Now, shifting any product or service from the 18% slab to 5% will require very strong justification," the first person said.
Jet fuel
The GST Council had deliberated on the inclusion of aviation turbine fuel (ATF) within GST at its meeting in December, but in view of the revenue-related concerns and the absence of support from most of the states, it did not see momentum in the proposal, the second person said.
“States maintain that about a fifth of their total revenue comes from non-GST sources… Given the importance of non-GST revenue for states, it is important for the beneficial effects of the recent GST reforms to first become evident on revenue collection growth before taking up any further reforms," said the person.
The Council examined ATF’s inclusion in GST because it would be easier than considering the inclusion of crude oil or other petroleum products. Jet fuel accounts for only about 1.5% of the total taxes collected from petroleum products by way of central excise duty and state-level value-added taxes, according to information publicly available from official records.
The inclusion of these products in GST is expected to make the indirect tax system more efficient given that two parallel streams of taxation—GST and central excise duty with state-level value-added tax—and the absence of credits for one type of tax for the settlement of the other adds up tax costs for businesses.
The three goals for the GST Council in the near future are simplification and streamlining of three aspects of GST—registration, refunds and tax returns, said the second person. A simplified GST return system will be rolled out from 1 November, added the person. Earlier this month, the Central Board of Indirect Taxes and Customs issued an order authorising officers to grant 90% of tax refunds on a provisional basis in “low risk" cases.
Tech-driven reforms
Policymakers should prioritise technology-driven compliance reforms to enhance the efficiency of GST processes and strengthen revenue buoyancy, said Rajat Mohan, a senior partner at AMRG & Associates.
“The GSTN (Goods and Services Tax Network) ecosystem must leverage AI (artificial intelligence)-based data analytics to detect anomalies, flag high-risk taxpayers, and ensure seamless reconciliation of e-invoice, e-way bill, and return data," said Mohan.
GSTN is the technology backbone of the indirect tax system. E-invoice is a system for reporting business-to-business transactions in real time to a government portal and e-way bills are the permits needed for the movement of goods within and across states.
“Extending mandatory e-invoicing and integrating it with the e-way bill system will enhance supply chain transparency, reduce documentation redundancies and improve real-time tax trail visibility," said Mohan.
Mohan also said that a risk-based audit mechanism supported by centralised analytics dashboards can significantly improve enforcement efficiency and curb tax evasion without burdening compliant businesses. Integrating data among GSTN, Central Board of Direct Taxes, ministry of corporate affairs and the customs department can enable holistic taxpayer profiling and cross-verification of income and consumption patterns, plugging revenue loss, Mohan added.
The Central and state governments collected ₹10.38 trillion in net GST revenue in the first half of the current financial year, an 8.3% annual growth. In nominal terms, India’s nominal GDP expanded at 8.6% in the first quarter.
Queries emailed to the finance ministry seeking comment on the matter remained unanswered at the time of publishing.
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