The upcoming GST Council meeting promises to be an interesting one, for it would have to consider the recommendations of the Group of Ministers (GoM) tasked with GST rate rationalisation. Implementing any change to GST rates will not be an easy task, given the opposing impact of such rate changes being felt on different industries. This was evident when the Council attempted to address the inverted duties in the textile sector; the changes proposed by the Council were not acceptable to some stakeholders and had to be rolled back. It is therefore a good idea to take a holistic look at the GST rate structure with an aim to simplify it and to correct anomalies. But the Council has to be careful about not adding any further inflationary burden on the economy, especially at a time when crude oil and other commodity prices are hitting the roof due to the Russian invasion of Ukraine.

Ideally, the aim of rate rationalisation should be to simplify the GST rate structure and not to garner additional revenues for the government. Yet, one of the stated objectives of the GoM is to review current tax slabs and recommend changes which will lead to higher revenue. Asking the GoM to review the list of goods and services exempt under GST in order to bring some of them under the GST net is not a good idea either. With items in the exempt list largely being essential items of daily consumption such as vegetables, cereals, meat and fish or equipment and tools used by the economically backward, tampering with this list will be far from ideal, especially at a time when the less privileged section is yet to recover from the impact of the pandemic. The concern being raised about the revenue neutral rate of GST moving lower from 15.3 per cent to 11.6 per cent also appears misplaced. A lower RNR shows that the indirect tax burden on taxpayers has moved lower over the last four years. This is something the Centre needs to be happy about. Also, despite the reduction in rates, growth in GST collections has been the highest ever in 2021-22. Average monthly GST collection this fiscal year is 30 per cent higher than in 2020-21 and 20 per cent higher than in the pre-pandemic year of 2019-20. The higher collections prove that the reductions in rates have helped tax collections and the government is at an ideal point in the Laffer Curve. Trying to move the RNR higher does not seem necessary at this point when tax collections are showing a strong growth.

The Centre is doing the right thing in streamlining the GST return filing mechanism, implementing e-invoicing and gradually moving towards invoice matching — for these are leading to better compliance, boosting revenue. These efforts, along with greater surveillance and containment of fake invoices and shell companies, will help in sustained improvement in tax collections. Also indirect tax collections are directly linked to consumption in the economy. As demand and consumption improves, tax collections can also improve further, doing away with the need to impose a higher burden on taxpayers.