India’s goods and services tax (GST) regime is set for its first major structural correction, with two ministerial panels beginning work on tax rates, slabs, list of exemptions and use of technology for better compliance.
The roll-out of GST four years ago and successive tweaks have eroded some of the country’s tax base, and the first review of the tax regime is likely to alter its contours to restore some of the loss, a person familiar with discussions in the government said.
The government set up the two panels last week; one is led by Karnataka chief minister Basavraj Bommai and the other by Maharashtra deputy chief minister Ajit Pawar.
Given the representation of 15 states in the two panels and the fiscal pressures faced by states, the GST’s structural revamp is expected to get endorsement from states.
Kerala’s finance minister K.N. Balagopal, a member of one of the two panels examining tax exemptions, tax slabs and tax rates, said that the effort would be to address revenue leakage, but the Centre’s fiscal support to states remains important.
“The ministerial group will work towards checking revenue leakage and to address the shortcomings in the tax system and we expect some improvement in revenue receipts. But it may not be sufficient. States are on a weak wicket today, after having their taxes subsumed into GST… For states, managing their budgets without GST compensation would be very difficult. We are seeking compensation beyond 2022 and expect that it would continue,” Balagopal said in an interview.
The mandate of the two ministerial panels is broad-based, ranging from reducing tax exemptions, removal of tax anomalies that require government to make tax refunds, review of the slabs, rates, a possible merger of slabs and leveraging data, technology and coordination between Centre and states to check tax evasion.