Swaraat / CA N S Padmanabhan
The GST Magical wand
If we recall those budget days , select products would get the benefit of excise duty cut. Call it coincidence or design , the random product selection would surprise us by the consistent pattern year after year and this exercise was once in a year and was largely based on lobbying.
The Ushering in of GST in place of various taxes embedded with input tax credit was in itself was a large tax reform. The initial hiccups was due to unpreparedness in terms of technology , awareness and knowledge.
Further , the tax rates were by and large fitted in the nearest bracket of tax rates. This defied logic and very purpose of the reform as some infrastructure items like cement has attracted the higher slab of twenty eight percent. The tax on both life and health insurance at 18 percent was also viewed as draconian.
The latest GST reforms by reducing the slab virtually to two five and eighteen. Most of daily essentials and food items either are out of GST or come down to Five percent.
Macro Goal
The reduction in rates and rationalisation is just a part of larger agenda.Boosting the economy through increasing disposable income ,controlling inflation and increasing productivity resulting in GDP rise.
The Finance Minister repeatedly and rightly pointed out that we should not term this as revenue loss. Then how would the exchequer manage with lesser resources arising out of lower tax rates. The Revenue implication as she put it would be around Rs 48000 Crores.
The Revenue Secretary explained that this is based on 2023-24 numbers. In 2024-25, GST recorded its highest-ever gross collections of ₹22.08 lakh crore, reflecting a year-on-year growth of 9.4%. In 2023-24 and 2022-23, GST collections were ₹20.18 lakh crore and ₹18.08 lakh crore in respectively.
The GST volumes are not static. It has been galloping at a rapid pace. Thus the normal buoyancy will be accentuated by the reduced rates. Further the increased spending would be an effect of lower rates and higher disposable income. Basic economic postulate suggests more revenue due to lesser rates.
The middle class’ pocket is going to be richer in the days to come. As is the wont of our society , a part of this would definitely go into savings and investment. The major portion however will go into further spending leading to a fiscal balance.
Challenges ahead for The Centre
The Challenge ahead for the Government is how they are going to monitor the passing on of the benefit. The oligopolic situation of certain industry like Cement may give them strength to tinker with the prices which varies from state to state, region to region.
Next States may scream that they are losing though they had voted for in the GST council. The Centre itself may lose. When GST was introduced states were assured of compensation at the rate of fourteen percentage point increase for five years.
This ended by 2022, but lower collection during corona period has deferred this to 2026.Compensation cess and state borrowings in this regard would end soon probably by end of current calendar year.
Rationalisation behind reduction
The rationalisation exercise has been going on for a few years and we need to commend the Prime Minister for this bold move. Linking this move to Trump’s Tariff is akin to drawing nexus with amavasai and Abdul khadar.
It is a coincidence that Bihar election is round the corner. One would be tempted the timing to synchronize with eve of Bihar elections. If it was just like pressing a button, BJP Would have done it before 2024 elections. This needed consensus from states and cooperation from all quarters.
The rationalisation should have come by 2022 but the two years of corona and the aftermath has triggered this delay. Further the Finance and economic departments in coordination with state and centre had to undertake detailed study on modalities and potential implications.
Let us welcome this rationalisation and hope this benefits the public at large without any dilution whatsoever . As of now it is Thumbs up India, Middle class and Prime Minister Mr. Modi.