Change in GST rates may generate Rs 15K cr a year: Revenue secy Tarun Bajaj

Revenue Secretary Tarun Bajaj spoke to Shrimi Choudhary on the many decisions taken at the just-concluded GST Council meeting and also on some of the pending issues such as the compensation cess. Edited excerpts from the interview:

The GST Council has revised the rates for some items and also removed a few exemptions. What is your rough estimate for the revenue these measures shall help garner?

The Council decided to correct the inverted duty structure and exemptions. Inverted duty creates a lot of other issues, such as it brings inefficiencies in the value chain. Let's say there's a product with 5 per cent GST. In an inverted duty structure, 5 per cent doesn't mean 5 per cent -- there is an embedded tax on it. So, the actual rate could be much higher, making manufacturing in the country less lucrative than imports, as imports will only attract a 5 per cent duty. So, there was an attempt to correct it to ensure efficiency in the value chain and a seamless movement.

On the issue of exempting some items, I believe it will bring simplicity, and even if we don’t want to make changes in taxation on a particular commodity, such a correction can broaden the tax base.

In terms of revenue gain, we have not done an exact calculation but it can be over Rs 15,000 crore a year. As we are providing some concessions, some tax rates have also been brought down, along with refunds, which will take away some Rs 2,000 crore-Rs 3,000 crore. 

Rate revision on hospital and hotel tariffs has  not been appreciated. There’s a sense that health services could attract 18 per cent GST. Please clarify.

This is not correct. It is only for non-ICU hospital rooms which cost more than Rs 5,000 a day. The tax rate will be 5 per cent. Not relatively, but this is an indirect tax that will hit the rich and not the poor.

On hotels, we have brought Rs 1,000 per unit hotel under GST net on a par with the industry. Some were taking advantage of the set threshold. They (hotels) incentivise through strategies like lowering the room rate while charging customers for other services to escape the tax.

Would all kinds of packaging be taxable?

The Council said "packaged and labelled". Those doing packaging of loose items without any label or claims are exempted from this. The idea was to curb the misuse of law under the garb of the term branded. So we changed it to minimise confusion, that resulted in revenue leakage and litigation. The change in the term would bring uniformity.

What is your assessment of the GST regime, which has turned five? Will there be improvement in the tax-to-GDP ratio, which is currently not at the desired level? What’s your take?  

When GST started in 2017, it had some teething issues with technology and rates. We saw many rate changes. There were also compliance issues. Initially, we wanted people to adopt GST and thus did not emphasise compliances.

Implementing GST was challenging in a country like India, which follows a federal structure. It’s in contrast with some nations that have implemented GST. In those countries, the Centre and states both have different duties. We have a regime where states and the Centre cooperate with each other.

The regime has stabilised in the past two years or so. There's a lot of work that still needs to be done on the GST regime. But if you look at the revenue figures, they have stabilised even though the tax rates were not increased commensurately. Technology has improved, too. Compliances have improved as well. The taxpayer, too, has been given various facilities.

However, I would say that it is still a work in progress. Some work happened in the last Council meeting. Some more needs to be done.

But return filing and compliance have improved a lot. For example, GST growth in 2021-22 was over 30 per cent, compared to GDP growth at 19.5 per cent on a nominal basis. So, the buoyancy is almost 1.5. It means that GST has started giving benefits that it was expected to give. A lot of benefits have been given to the taxpayer, such as quarterly return payment, easing compliance, composition dealers scheme. In this Council meeting, there have been steps to facilitate micro and small dealers to go on to e-commerce platforms for intra- state sales, if their turnover does not exceed Rs 40 lakh, thus helping in ease of doing business.

Overall, we are moving in the right direction. We have some work to do, and maybe, in the next year or two, we should be able to finish that off, which would make the regime stable overall, and be beneficial for both taxpayers and the State.

Has the Centre deliberated on the compensation concerns raised by states owing to revenue shortfall?

I will say that as of now, there is no compensation to date as June 30 gets over. Also, an increase of 30 per cent in GST revenues in 2021-2022 and 35 per cent in the first two months of this fiscal year-- which could go up with the June numbers—would raise revenues for states and compensate the loss borne by them during the pandemic. The average revenue this year should be close to Rs 1.5 trillion (a month). This would shore up revenues of states and the Centre.