Since India introduced the goods and services tax (GST) in July 2017, the tax reform has seen numerous changes. About 18 months into its life, it is still under intense scrutiny. Mint takes a look at GST’s evolution and its future direction.
In the pre-GST tax regime, each commodity would attract up to 17 taxes, Under the GST, four tax slabs were introduced, with each item taxed at one rate. The plan is to move towards a single standard rate in the future of around 15% Since its implementation GST rates have been sharply cut on many items. The highest slab of 28% has only 27 categories of products, down from close to 228 at the time of rollout Has GST succeeded in achieving its goals?
The goods and services tax (GST) replaced 17 central and state taxes that existed before and has led to the removal of check posts at state borders, transforming India into a single market. It cut business costs by removing what is called “tax on tax”. GST has also increased the number of taxpayers to 3.4 million, according to the fiscal year 2017-18 Economic Survey. The increase in the tax base will help the exchequer with higher receipts when economic growth quickens. However, a large part of the economy—fuels, electricity, land and real estate excluding construction contracts are still outside GST.
Why has this tax regime been criticized?
One of the criticisms from the opposition Congress party is that GST has multiple tax slabs and that the highest slab is 28% against a cap of 18% it had proposed. The National Democratic Alliance government contests this saying that GST has brought down the tax rate on 97.5% of commodities to 18% or less, as against an effective rate on most of the items in the pre-GST era of 31%. The opposition also alleges that the GST regime was rolled out in a hurry and without adequate preparation, which resulted in hardship for traders across the country.
Why has India adopted multiple GST Rates?
Income inequality makes it difficult for India to adopt a single tax rate for all commodities as in the city state of Singapore, which taxes all items at the rate of 7%.
Have consumers benefited?
Yes, through tax cuts. Transparency in its computation has made the high incidence of indirect tax on many daily use items apparent, which has prompted the federal tax body, the GST Council, to cut tax rates. The Council estimates the tax cuts announced so far amount to a benefit of ?80,000 crore a year. However, the issue of businesses not passing on tax cut benefits to consumers remains a serious concern. Many consumers have filed complaints which are being examined by the National Anti-profiteering Authority.
What direction is the GST heading towards now?
The GST Council plans to converge the 12% and 18% slabs, which would make GST a two-slab tax, barring the items on the exempt category and the few luxury and sin goods taxed at 28%. When revenue receipts improve, the council will also consider inclusion of crude oil, petrol, diesel, natural gas and aviation turbine fuel in GST. This will help businesses into oil and gas exploration, refineries, as well as industries such as airlines in reducing their tax burden.
The Mint, 26th December 2018
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