Need for a single GST rate
17th Nov, 2022
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.
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.
- 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.
- 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