CPI inflation may come down by 2% by year-end: Hasmukh Adhia

Interview with Revenue Secretary Hasmukh Adhia

After a hectic two-day Goods and Services Tax (GST) Council meeting in Srinagar to finalise fitment of rates for almost all goods and services, a much relaxed Revenue Secretary Hasmukh Adhia spoke to Dilasha Seth in Gulmarg, surrounded by a thick cover of snow. Adhia said the consumer price inflation rate should come down by two per cent by the end of the financial year due to improved compliance. While he urged the trade and industry not to increase prices of products or services for the time being, he said that spreading consumer education would be the department’s key priority ahead of the July 1 GST roll-out. Edited excerpts:

After the 14th GST Council meeting that saw fitment of rates for goods and services, what is the level of preparedness for the July 1 roll-out? How many more Council meetings will be needed to be fully ready for the implementation?

We are done with almost 95 per cent of the work. We are left with just five per cent, which we will tackle in the next meeting on June 3. If need be, we will have one more meeting before the July 1 roll-out.

What are the residual issues that still need to be sorted?

Trade and industry reach-out is one of the important factors to be taken care of before the July 1 roll-out. This is something that we are already doing and need to accelerate. 
 

Also, the Centre and state machineries are conducting town hall meetings across the country and creating awareness about the GST and explaining procedures and rules to trade and industry.
 

Consumer education is very important, too, as although some of the headline rates are getting changed, the total incidence of tax will remain unchanged. Some traders might try to tell consumers that the government has increased rates under the GST and try to charge more. 
 

So, we will have to educate the consumers, so that they don’t pay higher taxes. These are the two challenges at the moment.

The telecom sector has voiced concern that the GST rate at 18 per cent will make the service expensive for customers. How would you respond to that, considering that they will also avail of the input tax credit on goods they use?

Although the headline rate is changing from 15 per cent to 18 per cent for many services, the facility of input tax credit on goods consumed to provide a service is now being given. So, in case of financial services, telecom or any other service, there will be at least a three per cent reduction because of the input tax credit being availed, and hence the actual incidence of tax is not going to change much. It will differ from industry to industry as to how much that amount will be. We have done some rough calculations and the reduction is coming out to be at least three per cent.

So, should we expect reduction in prices?

If the headline rate is changing, companies will charge 18 per cent, instead of 15 per cent. But because the companies are getting input tax credit facility, they will have to reduce the price of services or commodities to that extent. And, only then the tax rate can be applied. So, actually it will even out.

At what stage will the anti-profiteering body be set up? Will it be in the form of a quasi-judicial body or an administrative setup?

It need not be a quasi-judicial or a judicial authority. It can be an administrative machinery also. But, it has to be a body that is accountable and which is being supervised by the government because it will only involve looking at the balance sheet of companies, asking them a few questions, giving a hearing, and then deciding on whether there has actually been profiteering or not.

How soon will the anti-profiteering body be set up?

We are trying to set up the machinery as early as possible or to identify an agency that can look into it. But even if we set it up three months after the GST rollout, anyone indulging in profiteering prior to that could also be under scrutiny. We will do consultations with trade and industry and request them to ensure that they cooperate with us. We will request them not to increase any rates now in the interest of smooth implementation of the GST.

Has the Council been able to address the concerns of e-commerce players with respect to total collection at source (TCS)?

A rate of one per cent TCS has been set for e-commerce companies. E-commerce companies were asking not to keep this provision, but the Council has decided on a one per cent TCS as against the two per cent provision available under law.

How much of tax buoyancy do you expect after the GST implementation as the government is banking on increased rate of compliance?

We expect tax buoyancy to improve a lot. The GST is a modern system of taxation with a seamless flow of input tax credit. The chain is such that nobody can escape it. That’s why the compliance is definitely bound to improve. So, we do expect some revenue gains. That’s the reason we have taken some risk and tried to reduce tax rates in many commodities. We expect that despite reducing rates in many commodities and putting some items in exemption list, we will still not be losing.

Do you have an approximate figure of how much the government will gain in terms of revenue collections?

I can’t put a number, but all I can say is that our revenue estimates will be met at least for the current fiscal. From the second year onwards, we will have much more buoyancy.

Will we see an inflationary impact on the economy at least in the first year of GST?

I don’t think so, because we have taken particular care to ensure that the consumer price index basket commodities are kept either in the exempt category or in the lower slabs. The services sector has a weightage of about 11 per cent in the CPI basket, and most of it relates to education and health. Both education and health have been kept out of the GST. So, we do expect that there will be no inflationary impact of the GST. In fact, CPI can come down by two per cent by the financial year end, if the reduction in taxes is passed on to consumers.

What will be the level of compensation to states this fiscal? How different will it be from Rs 50,000 crore estimated for 2015-16?

We have not made the exact estimate as of now, but roughly whatever compensation amount is required for current year will come from the cess income. That’s why we have not tried to reduce rate on small cars. We wanted to gain some revenue out there. While Rs 50,000 crore is the amount for 2015-16, we are yet to make an estimate for 2017-18. We have made rough calculations though.

How prepared is the IT-backbone, GST Network?

I reviewed the preparedness of GSTN work only last week. I went there and had a long discussion with Infosys, the main service provider for GSTN. It appears to me that they are well prepared and well on track. Despite that, we are keeping a close watch and holding weekly meetings with them. Also, on June 3, the Council will also get a presentation on where it stands.