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Expecting broad-mindedness in the broad-based GST
July, 02nd 2019

Fresh off winning a clear mandate in the national elections in May 2019, Modi 2.0 is set to present the first Union Budget of its second term. It is expected that this budget will be instrumental in setting the tone for administration, and conveying the seriousness of the Government to revamp business, which is reeling under the twin shock of a changing global trade scenario, as well as a slowing domestic economy.

Curiously, this budget will coincide with the second year anniversary of GST – which became the signature policy push of this Government, in its previous term. The setting up of a parallel body in the GST council may have taken away the sheen from the Union Budget as an indirect tax instrument – but there is no better stage than the Parliament for announcement of big bang reforms, which are need of the hour.

In the recent past, the Government has acted quickly in the face of changing circumstances through rationalisation of rates and timely extensions. At this critical juncture for Indian economy – addressing the challenge of slowdown in domestic consumption faced by industry, will provide a vital signal of confidence from the Government.

One of the options the Government may consider could be removing bottlenecks in the current GST structure, which are leading to operational costs.

The first point where the Government could really look to ‘take off’ is the haphazard tax structure applicable to Aviation Turbine Fuel (ATF). ATF continues to be taxed by Central and State Governments vide Central Excise and VAT laws, with rates varying widely between different states. As a result, input tax credit is not freely available causing additional outflow and undue tax burden on airline operators.

The aviation sector has traditionally been a highly cost competitive environment, and the onerous taxation is adding to tightening of belts in the segment. Further, the cost to the end passenger also increases multifold – which is neither in harmony with reviving the industry nor the Government’s goal of increased connectivity.

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