GST Council, look beyond housekeepin'

The GST Council is a bit like the Lord of the Rings. It remains preoccupied with tweaking tax rates on specific goods and services, underscoring the need to push the structure towards a uniform tax rate – the rhetorical ‘ring that joins us all’. Collapsing GST rates becomes trickier with mounting calls for exemption or relief. A uniform GST rate will be low if it covers all economic activity. Having multiple rates to encourage specific goods and services tends to lock the rest in higher brackets to keep tax revenue growing. This goes against the design of GST, which has a linear correlation with economic growth. It may be tempting, but not prudent, to use the initial tax buoyancy of a switch to GST to saddle the system with excess exemptions.

Exemptions for insurance policy premiums were the top agenda item for the latest meeting of the council. Despite considerable growth in state-funded provision, India has poor life and health insurance coverage. The low coverage results in high premiums that GST relief could offset. There is also a need to bring parity between privately purchased and state-provided insurance. The council has referred the matter to an evaluation committee and is expected to announce relief soon. Irrespective of the merits of the case – and this was not an isolated one at this council meeting – every such relief makes the job of yet another GST panel tasked with reducing the number of tax slabs – currently at five, including the exempt slab – more complicated.

Ideally, the council should be devoting a greater part of its energies to its architecture. Monday’s meeting took up the matter of deciding how to divide extra cess collected to compensate states for any loss during the initial years of GST. It will also look at streamlining the flow of funds from the integrated GST account to states. While these constitute necessary housekeeping, the council should not lose track of the broader need to rationalise rates. It would make life – also known as how we procure and do business – easier.