*Paromita Das
The Goods and Services Tax (GST) Council’s 47th meeting made several significant decisions, including removing exemptions and concessions on a number of goods and services, rationalising some rates to reduce the incidence of inverted duty structures (where the amount of input tax credit due exceeds the amount of output tax due), and suggesting some administrative changes and clarifications.
The most significant adjustment was the choice to apply a 5% GST to locally produced unbranded pre-packaged goods like rice, wheat, curd, lassi, papad, and honey. Despite the fact that every state government supported the Council’s decision, some had second thoughts, perhaps as a result of regional pressure. For instance, KN Balagopal, Kerala’s finance minister, said that since the cost of daily necessities is rising, it is premature to impose a GST on them, including pre-packaged foods. He continued by saying that Kerala would not tax goods offered for sale in one- or two-kilo packets by businesses like Kudumbashree and small retailers.
Such decisions to deviate from the GST Council’s recommendations can threaten to disrupt the uniformity and harmony in the tax system in light of the Supreme Court’s ruling that the GST Council is only an advisory body and that Parliament and state legislatures have the sovereign authority to change the tax structure. However, there are also theoretical concerns regarding the soundness of the decision to revoke these exemptions and whether there are more effective ways to safeguard low-income groups and guarantee equity.
Pre-packaged foods make up a sizable portion of the diets of low-income groups, which is the main justification for their exemption. However, the majority of low-income households purchase loose and small-quantity foods instead of foods that are pre-packaged.
Second, even when low-income groups consume these goods at a higher relative rate, the exemption is not only applicable to the poor. Because of this, the non-poor category’s absolute consumption may be higher, and the latter group may benefit more from the exemption than the former.
Third, focusing on anti-poverty measures like cash transfers rather than altering the income distribution through taxes and subsidies is a better way to achieve the equity objective. Experts contend that instead of changing the income distribution, it would be preferable to broaden the base by eliminating exemptions and concentrating on eradicating poverty. They contend that this should be accomplished through the budget’s expenditure section. Perishables and unpackaged food items are administratively challenging to tax, so they must be excluded. The key idea is that there are better ways to deal with equity than creating a lengthy list of exemptions. However, the Kerala finance minister’s claim that goods sold by small unorganised sector traders and non-profit organizations like Kudumbashree require special treatment has some merit. These are decentralised producers and sellers that offer several women organized into self-help groups employment and financial security.
In Kerala, there are about 26, 5282 neighbourhood groups (NHGs). Keep the threshold for registration at a respectably high level instead of expanding the list of exemptions to include those on pre-packaged food items in order to protect them from the tyranny of taxation. The majority of NHGs are below the criterion when each is treated as a separate unit.
Due to the fact that the majority of people with low incomes buy their necessities from small traders, this lowers the compliance cost for many small businesses and benefits the case of equity.
The current thresholds for registering businesses that deal in goods are 40 lakh and 20 lakh, respectively. The GST Council might think about raising the limit for both to 50 lakh. The information gathered from Karnataka for 2019–20 reveals that businesses with less than 50 lakh annual turnovers comprised 92.7 % of the taxpayers. Unfortunately, data on taxpayers by turnover, their turnovers, and taxes paid are not in the public domain. They contributed 12% of the tax collected and 6.5% of the total turnover.
The administrative burden would be greatly reduced if the threshold was maintained at 50 lakhs in annual turnover, allowing the authorities to concentrate on the “whales” rather than the “minnows.” This would also address the issue of exempting Kudumbashree’s goods and those of other small vendors whose goods are primarily purchased by the underprivileged. To maintain a wide tax base and prevent levying it at high rates, the reform includes reducing the exemption list and maintaining the threshold at a high level.
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