Spring cleaning – Fixing grey areas is good, but the GST regime needs a broader reform plan

Source: The post is based on the article “Spring cleaning – Fixing grey areas is good, but the GST regime needs a broader reform plan” published in The Hindu on 12^th October 2023.

Syllabus: GS 3 – Indian Economy – Fiscal Policy

Relevance: About the recent decision of the GST Council and associated challenges.

News: In a recent meeting, the GST Council clarified the tax status of various goods and services.

What decision were taken by the GST Council?

The Council reduced the GST on molasses from 28% to 5% to lower cattle feed costs and improve cash flows for sugar mills.

The Council also decided not to tax extra neutral alcohol (ENA) used for alcoholic liquor.

Moreover, the GST Council has met more often this year and cleared up a number of tax issues, including harmonizing age requirements for the president and members of the GST Appellate Tribunals.

What are the concerns present with the GST Council?

The major concern for consumers and producers is the Council’s plan to discuss the future of the GST Compensation Cess and its replacement with a surcharge.

This cess was originally introduced to compensate states for revenue losses during the first five years of GST.

However, it was extended on items like aerated drinks, tobacco products, and automobiles until March 2026 as a response to the revenue loss caused by the COVID-19 pandemic.

Must Read: Recommendations of 52nd GST Council Meeting

What steps can the GST Council take to address the concern?

Although it is good to discourage consumption of certain harmful goods by levying a cess, introducing a new cess should be part of a larger plan to simplify the complex GST system.

This simplification plan was started two years ago, but it has not made progress, even though the government has been collecting a lot of tax revenue from the GST.

Hence, the Council should think about simplifying the complex multiple-rate structure of the GST and bringing excluded items like electricity, petroleum, and alcohol under the GST.