The GST Gamble

The Goods & Service Tax (GST) Council during its 47th meeting has agreed unanimously that taxes should be levied on all pre-packaged and labelled commodities. This means that products like curd, lassi and paneer would get more expensive than earlier. There has been a lot of hue and cry from the Opposition regarding the hike in prices with several MPs also staging a walk out. It is understood, from the series of tweets posted by Finance Minister Smt Nirmala Sitharaman, that there has been rampant misuse by manufacturers of pre-packaged products thereby reducing the GST revenue from these items. Therefore, it is imperative to ensure rate rationalisation by increasing the tax rates of certain commodities and to reverse the exemptions on certain commodities like jaggery which are sold by both registered and branded manufacturers..While the GST collections are higher than ever, the recent report released by the Comptroller & Auditor General (CAG) raises a lot of questions regarding the fiscal management of the Central government. It is observed by the CAG that the interest paid on debt has increased to Rs 8.05 lakh crore in FY21-22 from Rs 6.80 lakh crore in FY20-21. It is obvious that there would be a rise in the debt-GDP ratio because of the economic recession fuelled by the pandemic. In midst of this downward spiralling debt-GDP ratio, the government, now more than ever, needs a source of revenue that is stable enough to sponsor its populist measures such as the PM Garib Kalyan Yojana through which around 80 crore people receive free ration..A rise in GST prices is required to not only sustain the implementation of such schemes but also to ensure increased pace of infrastructural development. The Government of India, in its recent budget, had pledged to construct a record 18,000 kms of highways across the country. Such a lofty goal cannot be accomplished without the help of a stable source of revenue for the government. However, a question arises among the general public whether it is the responsibility of only the middle class to support national growth.While the corporates are enjoying a reduction in tax rates, the middle class does not receive any such fiscal gifts. As the middle class of the Indian society was coming to terms with the rising rate of inflation fuelled by exorbitant fuel prices, the GST Council has dropped a fiscal bomb by increasing the tax rates on household commodities such as LED lamps, lights and fixture, their metal printed circuits board , knives with cutting blades, paper knives, pencil sharpeners and blades..Compounding the burden is poor communication. This was manifested in the perception of a GST of 18 per cent on crematorium services whereas in reality the tax is applicable on contract and building works for the facilities. There was much furore over the perceived thought of taxing the dead! The debates over the landscape of applicability, the neutral rate, and the ideal number of rates are yet to be settled and tinkering continues unabated.The question of compensation to states persists and hogs the attention. For most of the states, the compensation from GST forms a large part of their revenue. As of June 2022, the Finance Ministry reported an outstanding GST compensation of Rs. 35,266 crore to the states. An economy approaching the USD 5 trillion GDP mark needs a defined glidepath to stability and predictability for all stakeholders..It is imperative for the policy makers and the public to realise that the process of development is a collective measure. It is important to ensure that the Indian middle class, who are the biggest contributors of direct tax, is both informed and convinced of the fiscal policies of the government. Introduction of stable tax reforms and maintaining effective channels of communication are the two necessary steps in constructing a society that puts India first.