GST revamp a welcome step, but clarity essential

THE long-awaited rationalisation of the Goods and Services Tax (GST) structure is a welcome move that needs careful carry-forward momentum. The Group of Ministers’ approval of the Centre’s proposal to scrap the multi-slab GST system in favour of a two-tier structure sets the ball rolling for major customer-centric reforms. A boost to economic activity is imminent, provided all that is promised is delivered on the ground. The plan entails two rates for most items —

5 per cent and 18 per cent — based on categorisation of products as merit and standard. This means that the 12 per cent and 28 per cent slabs would be scrapped. The GST Council is expected to take a final call before Diwali. The decisions taken could mark a defining moment for business and industrial growth.

The proposed zero GST on premiums is expected to make life and health insurance more affordable. Besides improving penetration, the tax removal will provide relief across income segments. It may sound like a big win for customers, but with everything connected to taxation, there’s a flip side too. The benefit may not reach them in full since insurance companies could pass on the loss of their input tax credit benefits to customers through higher base premiums. How to negotiate the industry demands with customer expectations is the real test for the GST Council. A lack of transparency and loopholes in any new structure could dissuade potential insurance-seekers and limit the scope of financial security the reforms are aimed at.

A collaborative arrangement will have to be worked out to address member states’ concerns about the potential revenue loss because of the rate rationalisation. It is a sound argument that lesser revenue on account of a pro-people tax structure could eventually impact pro-people state schemes.

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