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Need for a single GST rate

Published: 18th Nov, 2022

Context

Prime Minister’s Economic Advisory Council Chairman pressed upon the need to have single goods and services tax (GST) rate and an exemption-less tax regime.

About

Key concerns raised:

Differential Tax Rates:

  • Some demerit and luxury goods, which comes under 28 percent GST slabs, attract additional levy of cesses.
    • Its proceeds go to a separate fund meant to compensate states for revenue shortfall and repayment of compensation-related loans.
  • On the contrary, those of mass consumption are done away with or given some exemption.
  • As a polity, the GST rates should be the same regardless of the product.

Progressivity in Taxation:

  • To introduce progressivity in the tax regime, one may consider doing it by way of direct taxes and not through GST and indirect taxes.

Not meeting the expenditure needs:

  • The combined tax collection of the Centre and states is just 15 percent of the GDP
  • The requirement for government spending on public infrastructure, education, healthcare, and defense is around 23 percent of the GDP.
  • We must be willing to pay tax or we must be willing to settle for reduced delivery of public goods and services.

Exemption-less system:

  • More tax exemptions result in a more complicated taxation system.
    • The average GST rate at present is 11.5 percent instead of 17 percent as estimated before the GST rollout.
    • The revenue foregone because of exemptions by the government is about 5-5.5 percent of GDP.

About GST

  • GST was introduced through the 101st Constitution Amendment Act, of 2016.
  • It was set up by the President as per Article 279A (1) of the amended Constitution.
  • It is one of the biggest indirect tax reforms in the country.
  • It was introduced with the slogan of ‘One Nation One Tax.
  • The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax, etc.
  • It is essentially a consumption tax and is levied at the final consumption point.

Significance of GST:

Issues Associated with GST:

 

  • Created a Unified Common Market
  • Streamlined Taxation
  • Increased Tax Compliance
  • Discouraged Tax evasion
  • Reduced Corruption
  • Provided Boost to Secondary Sector
  • Promoted Ease of Doing Business
  • Trust Deficit
  • Nearly half the economy remains outside GST.
    • E.g. petroleum, real estate, and electricity
  • Complexity of tax filings
  • Higher Tax Rates
  • Multiple Tax Rates

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