In its new report, the audit firm urges policymakers to rework definition of ‘luxury items’ in sync with current standards of living The government should consider further pruning of rates under the goods and services tax (GST) regime by slashing the top bracket and merging the mid slabs, a top audit firm has said. PwC India, in its report titled ‘200 days of GST’, has suggested lowering the 28 per cent GST slab to 20-22 per cent, and clubbing of the 12 per cent and 18 per cent slabs to somewhere between 14-16 per cent.
“..item in government’s priority list this year should be further pruning of (GST) rates. While there has been substantial reduction in the number of items in the 28 per cent bracket, the government should also consider reducing the rate from 28 per cent to 20-22 per cent,” the report said.
The GST Council had in its November meeting slashed rates on over 200 items. Rates of 178 items were reduced from 28 per cent to 18 per cent, including chewing gum, shampoo, detergent, chocolates, beauty products, and sanitaryware.
Other items that enjoyed a rate cut include leather clothing, cookers, stoves, aftershave, deodorant, detergent and washing power, razors and blades, cutlery, storage water heater, batteries, goggles, wristwatches, and mattresses.
Only 50 items currently remain in the 28 per cent bracket, including ACs, refrigerators, and cameras.
“It is important that policymakers revisit their definition of ‘luxury items’, considering standards of living in today’s world,” said the report.
GST was implemented on July 1 and has undergone a slew of changes to make it industry-friendly. Besides cutting rates, the return filing has been simplified and compliance burden eased over the months.
“There is hope that GST 2.0, which is at the works currently, will be a much improved version compared to the first one,” said Pratik Jain, partner, PwC India.
PwC further suggested aligning the tax with global trends, bringing clarity by removing legal loopholes and the need for simplification of compliance-related requirements such as a letter of undertaking in the case of GST-free exports.
The report pointed out that GST suffers due to ambiguities and loopholes that came to light only after its implementation.
Some of its provisions seem to contradict the objectives with which these were brought into play, it added. For instance, goods imported into a Customs bonded warehouse and subsequently sold to a customer in the domestic tariff Area attracts dual levy of tax. “This appears unintentional, but it is imperative that necessary changes in law are made soon,” it said.
“It is expected that the GST Council will bring taxation of transport and logistics on a par with global practices, i.e., zero rate export freight on an ongoing basis along with incidental services, clarity on place of supply provisions, stabilise GST Network (GSTN), and simplify GST compliance, allowing this sector to use a single number for e-way bills on an all-India basis,” said Varun Dhawan, head of taxes, India, Deutsche Post DHL Group.
Hazy rules on anti-profiteering is another concern. There is lack of clarity on whether a company can choose not to reduce the price of a particular product and instead offer an increased quantity or freebies. “While transitioning to the GST regime, various costs have been incurred by companies. There is still no clarity on whether such costs can be taken into account while computing a revised, anti-profiteering and tax compliant rate,” it said.
According to the anti-profiteering rules under GST, “Benefits of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices.” The government has received about 100 anti-profiteering complaints so far and about 63 are currently being investigated by Directorate General of Safeguards.
It further said that there was very little flexibility offered to users of GSTN. “For instance, there is no option to set off excess tax paid by an entity holding the same permanent account number under one registration vis-à-vis another registration in a different state. The network does not allow filing of returns for a subsequent period till the previous period returns are filed and the penalty, if any, is paid,” it said. The report said that resolution of these and implementation of changes on a simple and easy-to-use online portal is imperative for GST’s success.