GST Council Approves Measures To Ease Compliance For Businesses: Sources

The Goods and Services Tax Council has approved measures to ease burden of compliance on businesses, sources told NDTV Wednesday evening. The measures approved include reduction of registration time for MSMEs, i.e., medium, small, and micro enterprises, and start-ups from 30 days to just three. A proposal for automated GST refunds for exporters was also cleared.

The council began its two-day meet this morning with the rationalisation of GST tax slabs as the big-ticket item on its agenda. The council is studying recommendations to cut existing tax brackets by half. The current system has four slabs - five, 12, 18, and 28 per cent.

The government plans to drop 90 per cent of goods in the 28 per cent category to the 18 per cent bracket, and drop a chunk from the 12 per cent to the five per cent slab. This is expected to boost domestic consumption and offset the Rs 50,000 crore expected revenue loss.

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Overall, eight sectors - textiles, fertiliser, renewable energy, automotive, handicrafts, agriculture, health and insurance - will benefit the most from the rate overhaul, sources said.

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There are also proposals to exempt some goods or services - such as life and health insurance premiums, which attract 18 per cent tax at present - from the GST framework.

However, certain 'luxury' items, such as tobacco and high-end cars, as well as liquor, will continue to attract the 'sin goods' tag and, this time, a Health Cess or a Green Energy Cess.

These have been suggested as a replacement for the expiring Compensation Cess.

Earlier today sources said the rationalisation proposals are based on sharp differences in revenue collected under each of the existing four slabs over the past eight years.

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The benefit, the government believes, will be for the middle class, for whom prices of 'daily use items' (it is unclear still which goods this refers to) and 'aspirational' goods should be cheaper.

The tax cuts should incentivise manufacturers to slash prices. The reduction - which is not expected to match the rate cut since manufacturers rarely do so - should also spur production.

For example, dropping goods from the high-end 28 per cent slab to the mid-level 18 per cent should, in theory, offer big savings to (in)famously price-sensitive Indian consumers. And increased unit sales should offset manufacturers' concerns, such as reduced profit margins.

As a result, such manufacturers, who generally operate in labour-intensive sectors like automobiles and consumer electronics, may be prompted to hire more workers.

Increased demand from rationalised GST brackets are also expected to offset any impact of 50 per cent tariffs on exports to the United States, as announced by Donald Trump last month.

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Government sources said the tariffs are expected to hit exports worth $48 billion.

The council will attempt to build consensus for this rationalisation. There is, however, likely to be opposition from non-BJP ruled states, who believe the revenue loss is far too much.

Tamil Nadu and Bengal - both of which vote next year - are among eight expected to red-flag that potential loss (likely around Rs 50,000 crore) and ask for compensation.

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