Reconstituted GST GoM: Focus on Food, Footwear, and Textiles

The current structure of the Goods and Services Tax (GST) in India may soon get a new look as the reconstituted Group of Ministers (GoM) is scheduled to meet on October 20, 2023. The GoM set up by Bihar’s Deputy Chief Minister Samrat Chaudhary to look into GST rate rationalization will now focus on proposals for rationalizing the rate structure of food and beverages, footwear and textile all of which are currently in the 12 percent GST bracket. This meeting is specially important since the GoM seeks for ways to reduce the overall compliance cost to the taxpayers and improve the tax generation for the government. Reportedly, about a hundred issues were raised during the meeting and the decisions made are likely going to affect recommendations at the up and coming GST Council meeting in November. This has left stakeholders scrambling to understand how these proposed changes might de/reform the tax system and therefore living for the man on the street.

Reforms and Tax Policies: The Need for GST Rationalisation

GST was introduced from the 1 st of July, 2017, and is a major revolution that redefined the ambit of indirect taxation in India. However, as years passed, few issues are associated with the system, and they include the fact that the tax system is complicated, and business entities are burdened by compliance costs. Thus as the GST framework has begun to gain more maturity, these issues have had to be tackled through rate rationalization. Simplification of the structure of GST is one of the most important steps taken by the GoM to reduce the burden of compliance on the taxpayers and to improve the government’s revenue collection. This approach is especially important in a country where the taxation policy largely determines the price that even the average consumer has to pay for goods and services.

Focus Areas to be Addressed in the GoM Meeting

The next meeting of GoM will largely center on the suggestions to rationalize and reduce rates in respect of the items which are presently attracting tax @ 12%. Of them, food products, footwear and textiles are most sensitive since they are primary and affect the livelihood of most citizens in the country. The GoM intends to examine nearly 100 items and recommend changes that could be in the interest of the man on the street. It is anticipated that this change will help reduce the cost pressure on consumers while also preserving the companies’ ability to work within a less complex taxonomy.

1. Analysis on the 12% Tax Slab

An important function of the GoM is to deliberate on the phase out of the 12% tax slab. This means transfer of items from this category to either 5%, 18% or 28% rate structure. This scaling down to a more easily understood three levels of tax is expected to greatly ease the framework of the GST. This rationalization has been deemed by experts to be the right step to be taken in the future but may take time to be seen practically because states have to give proper consideration on the prospective endorsements so as to weigh their impacts on revenues.

2. Stakeholder Involvement

The GoM suggestions will be vital for the GST Council, which is expected to meet in the next month, November. It has 33 members, the Union Finance Minister being a chairman. Only one of the 16 states present nominates their finance minister, or any other minister, to appear before the committee. To pass any changes a three–fourths majority vote will be needed, this means that consensus from all the states will be necessary. A variety of representation is achieved within the council to cater for every region hence a balance in taxation reform is upheld.

Also Read: GST Rate Updates 2024 – Goods and Service Tax Rates

Expected Outcomes of the GoM Meeting

Outcomes of the GoM Meeting: 

The expected performance outcome of the GoM meeting is a supportive, open and communicative environment that produces tangible outputs in the form of new strategies, programmes and policies handed down from the executive for the implementation by the relevant Ministries, departments and Agencies. The GoM meeting that was held on October 20, 2015 will determine what the GST will look like in India. 

Several potential outcomes can be anticipated:

1. Streamlined Tax Structure

The GoM is therefore seeking to reform the existing tax slabs for it is proposing adjustments to the current structure with an intention of making the Indian tax structure more accommodating this easy for business. It may also greatly improve compliance levels for business, which in turn would increase the overall tax take.

2. Improvement of Compliance and Revenue Collection

Simplification of the GST structure is hoped to partially help alleviate the compliance costs for business. That is, the likelihood of tax evasion reduces as businesses are more able to follow the applicable tax law, leading to increased government collected revenues.

3. Impact on Consumers

The proposed changes will most directly affect consumers as concerns the statutory goods/product. Going by these changes or rationalizations in the GST rates, the GoM seeks to make these essential products cheap or affordable. This is especially the position when the cost of living is still on the rise in our country.

Also Read: 54th GST Council Meeting Highlights: Updates, and Outcome

Challenges Ahead

While the intentions behind GST rate rationalization are commendable, several challenges may arise:

1. The Revenue Side and its Implication to the States

As such, the effects of FCP on state revenues is one of the biggest concerns. Due to the revenue from 12% tax slab states a large proportion of revenues for these states and major changes may put a pressure on their revenue. CH, B, C, The GoM needs to take care of these considerations so that the problem of fiscal imbalance does not emerge at state level.

2. Consensus Building

Sometimes it can be very difficult to find consensus amongst these diverse states with different economic considerations. Any recommendation of the GoM has to be in this respect, regionally sensitive together with an overall aim of achieving a proportionate burden.

Current Challenges in the GST Framework

• Complexity of Tax Rates: 

The current GST structure comprises multiple tax slabs—5%, 12%, 18%, and 28%. This multiplicity often leads to confusion among taxpayers and businesses, complicating compliance.

• Compliance Burden: 

Small and medium enterprises (SMEs) particularly struggle with compliance due to intricate regulations, leading to increased costs and a higher likelihood of errors.

• Impact on Essential Goods: 

The tax burden on essential goods affects the cost of living for average citizens. Therefore, rationalizing these rates is crucial for promoting affordability and accessibility.

Also Read: The Future of GST Compliance: Predictions and Trends

Potential Long-Term Effects of GST Rationalisation

The long-term effects of the proposed GST rationalization could shape the Indian economy significantly:

1. An introduction to Economic Growth and Development

The complexity of the GST could be reduced to enhance economic growth due to ease of doing business. If firms are encountering less in the way of barriers to compliance, they are likely to be willing to invest in growth and research and development to expand the economy as a whole.

2. Improved Taxpayer Morale

The coordination of tax policies and the reduction of compliance costs can make a positive impact in internal morale. This paper found that when businesses believe in the fairness and ease of paying taxes, they will support the tax system voluntarily thus improving the nation’s revenues.

3. Empowerment of Consumers

Thus, the proof of the success of GST rationalization is in the effects on consumers. This approach will help the government to make many basic products available and cheap in the market thereby helping the citizens to make better financial choices thus enhancing their health status.

The Role of the GoM in GST Rationalisation

The GoM is mainly tasked with assessing the current GST structure, and recommending amendments geared towards establishment of an easier taxation regime. The next meeting is important because the GoM will be addressing the 12% tax slab, which consists of a number of goods that are considered necessities for many citizens.

Objectives of the GoM Meeting

1. Review Essential Goods:

The GoM is still concerned to focus the discussion on important products that have a closer relationship with consumers’ daily lives, including food, shoes and clothing.

2. Simplification of Rates:

Though, the GoM hopes to decrease the number of tax bands through abolishing the 12% slab.

3. Compliance and Revenue Generation:

Optimizing the rates of tax helps in easy compliance with the obligations set down by the government to firms and at the same time, increases the revenue yields of the government.

Key Participants in the GoM

The GoM consists of various state finance ministers, including:

• Suresh Kumar Khanna is.an Uttar Pradesh based candidate.
• Chandrima Bhattacharya from Western Bengal
• KN Balagopal (Kerala)
• Gajendra Singh (Rajasthan)

A still more amazing tradition of hog raising is in practice in Karnataka with Krishna Byre Gowda as its ‘chief minister’. Collectively, their expertise will be invaluable when seeking to solve issues of GST rationalization that may be tangled in webs of interconnectivity.

The Broader Economic Implications of GST Rationalisation

The proposed changes for tax structure are of not only national but also international concern. They touch upon broader economic dynamics that influence the livelihoods of millions:

1. Boosting Consumer Confidence

The government can expand consumer confidence by implementing rationalizations of GST rates applicable to various vital products. When prices are anchored, and basic commodities cheaper, households are in a position to efficiently utilize resources and therefore lead to better standards of living.

2. Stimulating Business Growth

A scaled down structure of GST could help in putting pressure on the compliance costs and boost business. It could even facilitate small and medium enterprises to extend, innovate and create job opportunities to boost up the economic development.

3. Improving competitive position of India on global forum

They state that India’s export-base policy levels the government tax regime and makes the country more competitive for foreign investment. From the global competitiveness perspective, simplicity and efficiency in tax levies and charges can go a long way steadily making India a preferred destination for investors.

Conclusion

The GoM’s meeting scheduled for October 20 is perhaps the last chance for further review of the existing GST framework in India. With principles centered towards easy rate structure and enhancing taxpayers’ compliance, the GoM can indeed revolutionize the taxation system in India. The discussions of these prospects are not limited to matters concerned with revenues and expenditures, or to budget numbers, and balance of payments records but are integral to the lives of men and women, and the wellbeing of the economy. The outcome of the GoM meeting may result in an effective, fair and harmonized GST representing the common acquiescence of business forces and consumers. In the process of this important meeting, stakeholders need to embrace a wider definition of these proposed changes as pro-creation of a healthy economic base.

Also Listen: GSTR 7 in GST: Essential Compliance for TDS Deductibles

FAQ

1. What is the meaning of Reconstituted GST GoM and why was it formed?

The reconstituted GST GoM seeks to reconsider and improve GST policies in relation to specific sectors, namely the food, footwear, and textile industries, because of the complexity of these sectors and the inefficiency of the current policies that affect them.

2. But who formed the GoM?

The GoM also consists of members from different states that bring food ministers, footwear ministers, textile ministers and ministers who are in charge of relevant regulations to avoid any loophole.

3. In which sectors will the GoM be particularly interested?

The GoM will focus on three main sectors: groceries and food items, fashion footwear and its accessories, fabrics, clothing and textiles.

4. Which kinds of recommendations could the GoM offer?

Possible solutions may therefore feature changes in GST rates, the standard as well as measures intended to mitigate the compliance cost affecting firms.

5. What would be the implication of the changes to the consumers?

The GoM has been devised so that consumer interests are safeguarded by the taxation policy which again does not put pressure on the prices of essential commodities while encouraging the targeted sectors for development.

6. How can the GoM assess the effects of the changes which it has proposed?

To accomplish this, a regime will be introduced for measuring the efficiency of change by consumer/producer surplus and shifts in supply and demand curves.

7. How long would it take to integrate any of the changes that the GoM will suggest?

The GoM will thus indicate the time that various amendments should be implemented with due consideration with the State Governments who the amendments would affect.

8. What is then the reason that calls for a review of GST on these sectors?

GST implementation issues including supply chain issues, GST rates and carrying capacity affecting price and inflation and compliance issues especially on SMEs.

9. What is the stakeholder management plan of the GoM?

The GoM also plans to seek input from other stakeholders in the industry, consumers, and advocacy groups to be able to come up with its recommendations.

10. How will the GoM recommendations be followed up and this kind of work reviewed after the implementation?

The GoM will probably set up a system for supervising and evaluating the outcomes and efficiency of the recommendations it will set during a specified time-frame. This may include a need to perform periodic reviews and possibly change with the feedback from stakeholders in order to keep the framework in place to meet the needs of the concerned sectors.

Rutuja Khedekar Freelance Copywriter

Rutuja is a finance content writer with a post-graduate degree in M.Com., specializing in the field of finance. She possesses a comprehensive understanding of financial matters and is well-equipped to create high-quality financial content.

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