GST reforms need discerning debate, says Finance Minister

The rollback of Goods and Services Tax (GST) rate ‘corrections’ on textiles in late December will hurt the Production-Linked Incentives (PLI) scheme for the sector, Union Finance Minister Nirmala Sitharaman said on Monday. She called for a more nuanced debate to undertake course correction in the indirect tax regime instead of a tendency to oppose decisions without understanding their implications.

Taking on ‘one of the Opposition leaders’ remark’ that GST is the ‘Gabbar Singh Tax’, Ms. Sitharaman said: “More often, for whatever reason, knowingly or unknowingly, when we try to tarnish the GST for whatever agenda, we are undermining the institution [GST Council] that has been created with all the States on board. Very knee-jerk reactions like saying ‘Oh My god, GST has now become the Gabbar Singh Tax…. We are disserving our own country’s institutions.”

‘Teething problems’

While there could be ‘teething problems’, the Minister said these have ‘been taken up over and over again, several iterations are made on the same issue, but the system works’, noting that the Centre was in no position to dictate decisions at the GST Council.

“Because you address it to me, doesn’t make it a Central government issue. At the same time, I am not saying it is not a Central government issue. These things need more calibration and discussion,” she said, asking industry also to be more vocal when debates erupt over tax regime changes.

Ms. Sitharaman was responding to Grasim Industries managing director M.K. Agarwal who said the GST rate structure remained inverted for textiles, with basic raw material taxed at 18% while later parts of the value chain attracted lower rates.

‘Mixed signals’

“That is exactly what we wanted to correct, the inversion that is hurting all of us. It was a conscious decision taken by the GST Council after having deliberated over three meetings. But then we had to wait for longer and said alright, we will give more time to correct it and retain the status quo,” she said, adding that industry had given mixed signals on the rate changes for textiles that were approved by the GST Council last September.

“The voice of the industry is also sometimes, this way, some other times, that way. Within the industry, there is a request to correct inversion, but at other times, they say not yet, please bear with us. Therefore, we went to the GST Council and took a call not to correct the inversion at an extraordinary emergency meeting, although the correction itself is required for the PLI. Otherwise investments are not going to come in certain areas. The reality is that we will have to wait for it,” she noted.

Expressing sadness at the inability to undertake necessary rate corrections, Ms. Sitharaman said each decision entailed ‘a perception battle’. “Equally, the decision taken is not studied in full much before people comment about it and forcefully ask for a retraction. I think all this will have to become a discerning debate over an issue rather than a passionate reaction,” she concluded.

Revenue Secretary Tarun Bajaj also asked business leaders to be more vocal about the need for reforms. “I will make a request to the industry bodies and industrialists – you also need to come out and speak up openly that will strengthen our position and others will also learn that there’s another perspective,” he said.