DNA Edit | GST & Gujarat: Changes in Goods and Services Tax a political step too

With an eye on the upcoming Assembly polls in Gujarat, the BJP government has pressed the pedal on ushering in a slew of revisions in rates and rules of the goods and services tax (GST). These reforms, unsurprisingly, are focused on easing the pressure that many small and medium enterprise traders are facing under the GST regime. The catch is that these changes, to a large extent, cater to industries that have a large footprint in Gujarat. Out of 27 broad groups of goods which witnessed a reduction in their applicable tax rates, at least eight goods are those in which Gujarati traders command a domineering market share.

Reduction in the GST rates has all the trappings of an electoral sop being pushed aggressively in the run-up to the state Assembly polls. This relenting by the BJP is quite natural, and also on expected lines, given that the government is under enormous pressure to kick-start a slowing economy. By the looks of it, the high economy growth narrative is coming undone and a high-pressure cooker situation is slowly but surely developing on this front.

There are plenty of signs to show that the government is feeling the heat as well. At a time when the government has been painted into a corner, it has come out with all guns blazing and is slowly unrolling comprehensive changes in the GST rates as well as plugging the gap in its implementation, so that the otherwise ground-breaking reform does not become a roadblock for India Inc. In a relief, the input credit that has been amassed till now by the government will be calculated on October 10 and 18, and after a fortnight, the amount will be disbursed to the traders, effectively infusing a new liquidity swell of Rs 50,000 crore in the economy.

What’s more, the GST council,  in its 22nd meeting, has come to a decision that only those small traders who cross the Rs 1.5 crore turnover threshold will be asked to file quarterly returns, while the threshold for traders that fall under the composite scheme has been raised to Rs 1 crore from the earlier bar of Rs 75 lakh. This is welcome and also in keeping with the popular school of thought on taxation which dictates that the tax burden on smaller players should be lesser vis-à-vis the bigger players.

Finance Minister Arun Jaitley is aware that by burdening the small taxpayer, the government will only lose its political capital and the massive support that BJP enjoys with the business community of Gujarat. Obviously, with the overhanging threat of Hardik Patel and his Patidar Anamat Andolan Samiti (PAAS), the BJP wouldn’t want to anger its traditional vote bank further. Additionally, the changes in the GST regime will help reduce the compliance burden on small traders, who were, till very recently, forced to file three GST returns a month. The only concern is whether these changes are a little too late in the coming. The negative sentiment against GST has been gathering steam for some time now and Finance Minister Arun Jaitley’s reputation has also taken a hit. The question is, will the Gujarat BJP be able to escape unscathed from the inclement rhetoric on the economy?