​Selective indecision: on the GST Council’s 55th meeting, decisions

Well into the eighth year of India’s revamped indirect tax regime, the apex body governing the system met last Saturday and unveiled a flurry of decisions — including some rate changes and clarifications — that were punctuated by some broader issues it chose to kick down the road. That the Goods and Services Tax (GST) Council, with the Centre and States on board, had to wait for its 55th gathering to figure out that it needed to clarify that pepper and raisins supplied by farmers, gift vouchers and penalties levied on borrowers by banks and non-banking finance companies, are not taxable, is instructive. Similarly, the switch to a three-tiered levy for something as banal as popcorn — despite the rationale of taxing sweetened varieties more in the name of health — after all these years, is worrying. Such moves neither reflect well on the Centre’s claims around its hurried July 2017 rollout that the GST is a ‘Good and Simple Tax’, nor does it bode well for a meaningful overhaul of its multiple and complex rates’ structure through a long-delayed rationalisation exercise.

That the Council also did not bother to consider initial recommendations of a ministerial panel tasked with rejigging the GST rates, nor take up a panel’s suggestions to review life and health insurance policies’ taxation despite a commitment to expedite this rethink, only diminishes expectations from the panel going forward. That the panel’s head left the meeting early, stating it will hold further deliberations on insurance policies’ levies soon, is not comforting, if not entirely casual — especially as the government has been promising action on this front since the Budget session. The dithering, for whatever reason, is beginning to hurt the industry too. In November, new life insurance business tanked for the first time this year as consumers held off on buying a cover in anticipation of a GST cut. The longer this indecision, and the feet-dragging on the broader rate rationalisation plan, launched over three years ago, persists, the worse will be the implications on consumption that has already turned tentative, and private investment plans that hinge on consumption as well as tax certainty. The Council’s decision to reverse an October verdict of the Supreme Court letting realty players claim input tax credits on costs of construction for commercial structures intended for renting or leasing purposes, will also have ramifications on India’s investment climate. With legal changes to take retrospective effect from July 2017, this is a blast from the past for investors spooked by similar taxation misadventures over the past decade.