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GST - Punjab CM writes to PM - Favors inclusion of electricity & alcohol

Published: May 31, 2019

By TIOL News Service

NEW DELHI, MAY 31, 2019: THE Chief Minister of Punjab, Captain Amrinder Singh, today wrote to Prime Minister Modi, offering an eye-popping 101 suggestions in respect of the GST regime. Observing the overwhelming majority obtained by the incumbent Government as well as support offered from the Congress Party, the CM urged that the GST regime could be drastically improved so as to achieve world-class standards. This would improve the competitiveness of Indian businesses, create jobs and ease the burden of compliance.

For starters, Captain Amrinder Singh suggested bringing Electricity, Real Estate, Petroleum and Alcohol within the fold of GST, touting such move as being a win-win situation for States as well as businesses. He drew attention to the fact that electricity constitutes up to 30% of the cost of production in many key sectors and its exclusion from GST results in huge cascading of up to 10%. The present structure prefers coal-based polluting captive power plants of big industries over stand-alone power plants (many using natural gas) from where MSMEs source their power. He thus drew attention to the pinch being faced by MSMEs after GST.

He further mentioned that exclusion of products like crude and natural gas from GST results in a situation where it is beneficial to export them and re-import rather than supply them directly within India. Thus, the CM pointed out the anguish faced by his own state of Punjab and other states as well, in the sense that they lost considerable revenue as the embedded taxes on these products are retained at source instead of at the place of consumption.

With increasing reliance on technology, Chief Minister has made many suggestions that should help move towards easy automation of processes and even a driverless environment in GST compliances based on algorithms. The expected growth of up to 1.5% in GDP after GST has largely remained a pipe dream mainly because Indian businesses continue to suffer from considerable cascading. Tax credits are the real soul of a value added tax and its blockage acts like bad cholesterol in human body. CM has made many suggestions to remove embedded taxes in order to make Indian businesses competitive rather than benefitting imports over domestic production.

The Chief Minister has also advocated much wider trade consultations and constitution of a Council Secretariat on a permanent basis that could undertake informed studies on GST and help bring far greater certainty on key subjects.

India has the dubious distinction of being amongst five countries in the world that have four or more non-zero GST rates. While ideally GST should have a single rate, suggestions include not more than two rates for any Chapter and not more than one rate at four-digit level of any chapter sub-heading. This would ensure harmonization of tax rate across similar supplies and avoid classification disputes besides opportunities to evade. For example there is little justification to differentiate in tax rates in various modes of transport as follows:

Captain Amrinder Singh further stated that GST can be collected from far lesser number of people without compromising the revenues while liberating millions of taxpayers from avoidable compliances. The true potential of MSMEs stands choked by unnecessary restrictions on inter-state movement of goods which should be liberated. He even suggested an amnesty scheme to overcome all the various aberrations that that caused so much of confusion in business circles in the initial phase of GST. There is no need to continue with VAT legacy issues which should find a sunset clause. He has advocated correction in many legal infirmities followed by Guidance Notes for key sectors of the economy so that trade doesn't fall in the lap of consultants due to basic confusions. This is to ensure that litigations should be nipped in the bud and save compliance cost for the business.

Many other suggestions would help to boost exports or provide level playing field to Indian industry vis-à-vis foreign counterparts. There are a number of suggestions on improving GST revenues that should help Punjab narrow its revenue deficit. CM has suggested that SGST rate should be higher than CGST so that all States do not suffer such huge deficits.