The first quarter GDP is an aberration, not a trend… India’s fundamental economic factors are still very strong and, now that the government has found a way to solve the problem of bank recapitalisation, we can expect a buzz in the economy very soon, says Adhia.
In the first major overhaul of the goods and services tax (GST) rates since its rollout on July 1, the GST Council on Friday reduced rates on 210 items of which 180 were in the top 28% bracket.
Hasmukh Adhia , who was designated as Union finance secretary early this week, replies in writing to ET’s 10 questions on GST and the reasons behind its rationalisation. Edited excerpts:
After over four months of the GST rollout, hitches still abound. Do you feel the government should have delayed its implementation?
I do not think that delaying would have made it so much better. Some of the problems were anticipated while some others cropped up only during implementation. As long as the government is alert in solving the glitches that come to light, it should be okay.
In hindsight, do you feel GST should not have been implemented so soon after demonetisation, another big shocker for the economy?
First of all, let me tell you that GST is not a shocker. It is a new system of taxation that has been debated for the last 10 years, and then brought into implementation. It has not come suddenly, out of the blue. Everybody knew the provisions of law, and the systems were designed in advance. GST reform is ideally complementing the government’s agenda of cracking down on unaccounted money. Therefore, it is logical in sequence to bring it soon after demonetisation.
Why do you think rationalisation of GST rates has become necessary?
The rationalisation of GST rates has become necessary because of three main reasons. First of all, the exercise of fitment of GST rates was done in a mechanical manner of adding up the existing tax rate of excise duty and VAT plus CST (Central Sales Tax) and putting that item in the nearest slab of tax. There were many items of production on which there was an excise duty of 12.5% but since these were produced mainly by MSME (micro, small and medium enterprises) whose turnover was below Rs 1.5 crore, there was no payment of excise duty made by them. Therefore, such a rate became too excessive.
Second, there are certain similar-placed items in different chapters of HSN classification which were identical in nature but were placed in different tax rates. This would lead to classification disputes and, therefore, it is important to correct those. The third reason is that there were many items of common man’s consumption that also required some relief. These are the three main reasons why rejig of rates on a large scale becomes necessary.
Exporters have been complaining about nonreceipt of refunds on time. Is there a move to address that issue?
We have already put in place a mechanism for refund for exporters. For the first three months of GST we continued the Duty Drawback scheme so that there was no need for refund. After that we have now continued the pre-GST regime of duty-free purchase of inputs by exporters, so now the question of refund will not arise. For the future, we are working on the ewallet system which will be some kind of advance refund available to exporters so that their funds are not blocked in payment of taxes.
Do you concede GST and demonetisation played a role in dragging India’s GDP down in the first quarter of this fiscal? When will the economy recover?
The GDP growth rate of India was affected because of a large number of factors, both domestic and international. Some temporary impact of demonetisation was expected. The first quarter GDP is an aberration, not a trend. We do expect the GDP numbers to be much better in the subsequent quarters. India’s fundamental economic factors are still very strong and now that the government has found a way to solve the problem of bank recapitalisation, we can expect a buzz in the economy very soon.
What is your assessment of the impact of GST on indirect tax collection in this fiscal, and beyond?
So far, the indirect tax collection, including IGST (integrated GST, which a seller has to collect from a buyer in an inter-state transaction), is on expected lines. However, we will have to watch for another three months before concluding how GST will impact the indirect tax revenue of the Government of India in the current year. For the future, we are very optimistic about revenue buoyancy because of expansion of the tax net as well as better tax compliance.
Having plenty of experience in serving in Gujarat (Adhia is a Gujarat cadre IAS), what’s your take on the fierce opposition to GST in the state?
This question has political overtones, and so I would not like to respond.
The opposition parties have been making GST a political issue. How did you react when you heard GST being called ‘Gabbar Singh Tax’?
Again, I won’t like to respond.
Do you concede that some mistakes were made in implementing GST?
All I want to say is that the implementation of GST is a step in the right direction for the country. We should not be deterred by small glitches here and there. The GST Council and the Government of India are constantly attempting to solve all the difficulties that have arisen in the implementation of the GST, and we will continue to do so, if required, in future too.
The preparation for the coming budget has begun. How are you going about it?
Preparation of budget is an annual exercise done by the Ministry of Finance. All the departments of the ministry are involved in this exercise. We still have two and a half months to come out with some sensible proposals for the budget.
SOURCE : https://economictimes.indiatimes.com/opinion/interviews/items-of-common-mans-consumption-required-some-gst-relief-hasmukh-adhia/articleshow/61610035.cms