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Business News/ News / India/  GST set for a makeover with ministerial panels beginning their review
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GST set for a makeover with ministerial panels beginning their review

The roll-out of GST four years ago and successive tweaks have eroded some of the country’s tax base, and the first review of the tax regime is likely to alter its contours to restore some of the loss

Panels led by Karnataka CM Basavraj Bommai (above) and Maharashtra deputy CM Ajit Pawar are examining revisions. PTIPremium
Panels led by Karnataka CM Basavraj Bommai (above) and Maharashtra deputy CM Ajit Pawar are examining revisions. PTI

NEW DELHI : India’s goods and services tax (GST) regime is set for its first major structural correction, with two ministerial panels beginning work on tax rates, slabs, list of exemptions and use of technology for better compliance.

The roll-out of GST four years ago and successive tweaks have eroded some of the country’s tax base, and the first review of the tax regime is likely to alter its contours to restore some of the loss, a person familiar with discussions in the government said.

The government set up the two panels last week; one is led by Karnataka chief minister Basavraj Bommai and the other by Maharashtra deputy chief minister Ajit Pawar.

Given the representation of 15 states in the two panels and the fiscal pressures faced by states, the GST’s structural revamp is expected to get endorsement from states.

Kerala’s finance minister K.N. Balagopal, a member of one of the two panels examining tax exemptions, tax slabs and tax rates, said that the effort would be to address revenue leakage, but the Centre’s fiscal support to states remains important.

“The ministerial group will work towards checking revenue leakage and to address the shortcomings in the tax system and we expect some improvement in revenue receipts. But it may not be sufficient. States are on a weak wicket today, after having their taxes subsumed into GST… For states, managing their budgets without GST compensation would be very difficult. We are seeking compensation beyond 2022 and expect that it would continue," Balagopal said in an interview.

The mandate of the two ministerial panels is broad-based, ranging from reducing tax exemptions, removal of tax anomalies that require government to make tax refunds, review of the slabs, rates, a possible merger of slabs and leveraging data, technology and coordination between Centre and states to check tax evasion.

According to experts, tweaking tax rates would require extensive cost-benefit analysis, given it would come at the expense of stability and certainty, one of the commitments of the government. Earlier, the Centre had debated merging the 12% and 18% slab to a rate somewhere in between. The difficulty with this is that while some of the items currently in the 18% slab may get a new lower rate, the items in 12% slab would see a tax increase. Besides, given that a large number of items are in 18%, it remains to be seen if the revenue gains from this slab merger may justify the trouble.

Going forward, states will put more focus on revenue mobilization measures to deal with the situation of the guaranteed GST compensation coming to an end in June 2022, said M.S. Mani, senior director at Deloitte India. “The recommendations of the two group of ministers would be keenly watched as expansion of the tax base, rationalization of slabs and focus on technology to curb evasion would be very important from a state perspective as well," said Mani.

This would be an uphill task for policymakers, given the erosion in the tax base.

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ABOUT THE AUTHOR
Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Published: 01 Oct 2021, 02:12 AM IST
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