Punjab CM Writes to Modi with 101 Suggestions to Simplify GST 2.0

·      Suggests Maximum of 2 Slabs, Amnesty Scheme, Widening of GST Net to Include Electricity & Petroleum

·      Wants SGST Rate Higher than CGST to Reduce Deficit on States Like Punjab

Punjab Chief Minister Captain Amarinder Singh wrote to Prime Minister Narendra Modi, suggesting the way forward on GST 2.0 rollout, with 101 concrete suggestions to plug the gaps in GST 1.0 and alleviate the problems currently faced by businesses in its implementation.

In his covering letter to the Prime Minister, the Chief Minister, while congratulating Modi on his spectacular victory in the recent Lok Sabha elections, welcomed the resolve expressed by him to move at a brisk pace to take the country on a trajectory of high growth and social justice. Citing the high expectations of the people in Punjab, Captain Amarinder Singh said he looked forward to working with the prime minister to bring prosperity to the people India as well as the state.

Specifically, the Chief Minister has made several suggestions on improving GST revenues that should help Punjab narrow its revenue deficit. He has suggested that SGST rate should be higher than CGST so that all States do not suffer such huge deficits.

Captain Amarinder Singh has suggested an amnesty scheme to overcome the various aberrations that led to serious confusion in the business circles in the initial phase of GST, saying there was no need to continue with VAT legacy issues, which should find a sunset clause.

Pointing out that India has the dubious distinction of being amongst five countries in the world that have four or more non-zero GST rates, the Chief Minister called, ideally, for a single GST rate, but said it should include not more than two rates for any Chapter and not more than one rate at four-digit level of any chapter sub-heading. This will ensure harmonization of tax rate across similar supplies and avoid classification disputes besides opportunities to evade, he added, giving the example of different tax rates in various modes of transport.

Tax Rate

Service

Nil

1.  By road and inland waterways (except services of a Goods Transportation Agent (GTA) & Courier);2.  By air from abroad

5% without ITC

GTA

5% with ITC of services only (Not goods)

Railways (excluding containers)

5% with ITC of services and conveyance (also double taxation: once on CIF price of imported goods and secondly as ocean transportation service)

1.  By a vessel2.  Time charter of vessels/leasing

12% with ITC

1.  By container by railways2.  Multi-modal transport

18% with ITC

1. Courier2. By air domestic, 3. Voyage charters

Captain Amarinder Singh has also suggested widening the GST net to include Electricity, Real Estate and Petroleum to make it a win-win situation for States as well as businesses. Noting that electricity constitutes up to 30% of the cost of production in many key sectors and its exclusion from GST results in huge cascading of up to 10%, the Chief Minister has pointed out that the present structure prefers coal-based polluting captive power plants of big industries over stand-alone power plants (many using natural gas) from where MSMEs source their power.

Naturally, MSMEs are facing the pinch after GST. Exclusion of products like crude and natural gas from GST results in a situation where it is beneficial to export them and re-import rather than supply them directly within India. The many States like Punjab lose a big chunk of revenue as the embedded taxes on these products are retained at source rather than at the place of consumption, he pointed out.

The expected growth of up to 1.5% in GDP after GST has largely remained a pipe dream mainly because Indian businesses continue to suffer from considerable cascading. Tax credits are the real soul of a value-added tax and its blockage acts like bad cholesterol in the human body. Captain Amarinder Singh has made many suggestions to remove embedded taxes in order to make Indian businesses competitive rather than benefitting imports over domestic production.

Many other suggestions that will help to boost exports or provide level playing field to Indian industry vis-à-vis foreign counterparts, have also been made.

Besides addressing structural issues, penal matters, revenue enhancement as well as tax rates and exports & imports, the proposals include initiatives for simplification of the tax regime, issues relating to supply, input tax credits, valuation, etc.

With increasing reliance on technology, Captain Amarinder Singh has given various suggestions that should help move towards easy automation of processes and even a driverless environment in GST compliances based on algorithms. He has also strongly advocated wider trade consultations and constitution of a Council Secretariat on a permanent basis that could undertake informed studies on GST and help bring far greater certainty on key subjects.

Listing GST as a key challenge that should remain high on the new government’s agenda, the Chief Minister said in its current form, the GST regime was choking the true potential of MSMEs by unnecessary restrictions on inter-state movement of goods, which he said should be liberated. GST, he stressed, can easily be elected from fewer people without compromising the revenues while liberating millions of taxpayers from avoidable compliances.

Despite significant refinements in the recent past, GST continues to languish with many differentiators and exceptions in tax rates, unclear law, lukewarm revenues and high compliance costs, all of which act as barriers to economic growth, said the Chief Minister in his letter to Modi.