Reimagining GST for the post-Covid era

Context: Reimagining GST for the post-Covid era should avoid one-size-fits-all cut and should focus on structural changes that work in tandem with other measures and thus harness synergies in addressing economic woes.

Role of GST:

• Constitutional Standing: Article 279A of the constitution has entrusted the entire policy space on indirect taxes to the GST Council.
• Addressing Demand: Recently announced measures takes care of the production wheels and GST being a consumption tax, GST Council should helf address the demand side.

Recommendations to the Council:

• Avoid addressing all the problems in a go: Instead policy-makers must look for an institutional response that cuts across all stakeholders that help in reviving economic activity and consumption. 

• One size fits all cut would not be optimal and aligned with fiscal constraints.

• Encourage through incentives: Two types of incentives are suggested:

• Waiver/Revival Package: 

• Complete GST waiver (2-5 years) for severely impacted industries, instalment-linked or deferment plan for the other identified industries.
• Permitting supplier to collect and retain GST for a specified period similar to a sales-tax deferral scheme.

• Deferral Package: Staggered discharge of GST liability, from current monthly cycle to quarterly or biannual.

• Reinvention of online supply model : 

• Facilitate: retail, health, education, and audio-visual services that can further expand online
• Hand held support to the telecommunication industry: its successful functioning underlines the very idea of a strong digital economy.
• New telecommunication policy: Addressing the adjusted gross revenue (AGR) issue
• Reduced GST rates and deferral equalisation levy: further the twin goals of digital economy and rationalising compliances.

• Temporary Rebate: on white goods and those falling under 28% slab, a two year window on deferral of taxes would increase the demand . 

• Tackle unemployment: Policy-makers must stay alert to rise in unemployment due to Covid-19 and calibrate the schemes with employment-linked subsidies and exemptions. 

• Neglecting recurring issues for now:  including GST network (mal)functioning, inverted-duty structure, input credit restrictions and late-fee waivers, instead focusing on structural issues which can have multiple effects on different sectors.