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Hiking GST rates is not the solution!
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Since the launch of GST in July 2017, the government has struggled almost every month to get close to the target. The shortfall on GST was Rs.1.25 trillion last fiscal and this FY it is likely to cross that number easily. It looks unlikely that this gap will be bridged when the current effective rate of GST is 11.6%, which is sharply lower than the revenue neutral rate of 15.4%. There are media reports that in the next GST council meeting on Dec 18, we will see GST rate hikes. Varied reports have announced suggestions in hike as per their "sources" -  in sectors like Hotels, air travel, petrol products and other luxury products. Merging of tax slabs by hiking the existing ones is also suggested.
 
If GST rate hikes do materialize, it is abundantly clear that the core purpose to bring more businesses into the organized segment and improve collections is lost. By making changes in GST rates frequently, efficiency of transactions and investing in logistics is gone in any case. Additionally, hiking GST on food products and a host of services will actually push inflation higher. With the RBI already putting rates on hold and bringing rising inflation again at the forefront, it may well put an abrupt end to the easing cycle. The solution in all probability lies somewhere else. 
 
Some suggestions to streamline GST:
(a) GST registration and implementation process continues to remain cumbersome. Time to register and the documentation required are too stringent. On top of it, frequent changes in forms is adding to the pain. To avoid that, PAN only can be allowed to register and start paying for GST. 
(b) All business above 5 cr turnover should be exempted from filing except fulfilling annual compliance. This will resolve working capital issues for vendors and make tax credit more streamlined.
(c) Rationalizing tax rates is required with utmost urgency from current 0%, 2%, 3%, 5%, 12%, 18% and 28% to more rational 2-4 tax brackets. GST is like an indirect tax which hits all kind of consumers.
(d) Make GST form proof mandatory for all business requirements like business loans and working capital overdrafts. This indirectly will put owners to file GST regularly and will increase compliance.
(e) Input Tax Credit (ITC) mechanism still remains WIP and is prone to tax leakages and slippages making cascading a big issue. The infrastructure to track, monitor and follow up needs an urgent update and simplification is required.
 

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