Issues left unaddressed, council needs to provide resolutions

In its 55th meeting, the GST council deferred taking a decision on several pressing issues. These included the demand for lowering the tax on health and life insurance and on the food delivery charges of platform aggregators. Alongside, the Group of Ministers (GoM) looking into the contentious issue of rate rationalisation sought more time, while another looking into the matter of the compensation cess was also given an extension. While there were other recommendations by the council on penal charges levied by financial institutions, fortified rice kernels and the sale of used cars, some of the clarifications that it did provide only served to highlight the oddities of the multiple rate structure under the Goods and Services Tax.

The council clarified that popcorn with salt and spices would be taxed at 5 per cent GST. If it is pre-packaged and labelled the tax would be levied at 12 per cent. And if it is mixed with sugar then at 18 per cent. This oddity, however, is not a one-off. Under this indirect tax framework, there are numerous examples of classification and categorisation of goods and services where different tax rates are imposed. For instance, a few months ago, D Srinivasan, Managing Director of Coimbatore’s Annapoorna Hotels, had raised the issue of the difference rates at which buns and cream buns were taxed. In the past, a distinction has also been drawn been packed/frozen parathas and rotis. India stands out as one of the few countries with such a complex indirect tax structure. Of 115 countries, only five – Ghana, India, Italy, Luxembourg and Pakistan – have four or more GST slabs as per the World Bank’s India Development Update 2018. Twenty-eight had two rates, while 49 levied a single rate. A multiple-level rate structure only raises the compliance burden, increases the space for bureaucratic discretion, and goes against the desire to improve the ease of doing business in the country.

The need for undertaking rate rationalisation — to possibly include examining not only the classification of items but also reduce the number of tax slabs and the issue of revenue neutrality — was discussed in the GST council in its 45th meeting in September 2021. The GoM on cess was constituted in its 54th meeting in September — the levy of the cess has been extended till March 2026 to pay off the loans taken during the pandemic. These issues should be resolved quickly. The council, which has already taken several steps to plug the gaps in the system, must soon arrive at a consensus on these issues.