Central Idea

The government has revived its focus on Goods and Services Tax (GST) rate rationalization by reconstituting the ministerial group of the GST Council.

About Goods and Services Tax (GST)

Launch and Purpose: GST, implemented on 1 July 2017, is a comprehensive indirect tax across India, replacing multiple cascading taxes levied by the central and state governments.
Consumption-Based Tax: It is charged at the point of supply and is based on the destination of consumption, benefiting the state where the goods or services are consumed.

Tax Slabs: GST in India is categorized into five main slabs: 0%, 5%, 12%, 18%, and 28%, with an additional cess on certain luxury and ‘sin’ goods.
Product and Service Coverage: The GST system covers over 1300 products and 500+ services, categorized under these slabs.
Periodic Revision: The GST Council revises the slab rates periodically, ensuring essential items are taxed lower, while luxury items attract higher rates.
28% Slab and Cess: The highest slab of 28% is reserved for demerit goods like tobacco and luxury automobiles, with an additional cess for revenue generation.

Complexity: The multi-slab structure and varying rates lead to confusion and increased compliance costs for businesses.
Rate Heterogeneity: Diverse rates across different goods and services complicate the tax system.
Dual GST System: The coexistence of CGST and SGST adds to the complexity and compliance burden.
Cascading Effect: Despite being a value-added tax, GST sometimes leads to cascading taxation, increasing the cost of goods and services.
Lack of Transparency: Invoicing under GST often lacks clarity on tax breakdown, affecting consumer awareness.
Collection Infrastructure: Inadequate infrastructure for GST collection leads to administrative challenges and delays.

Simplifying Tax Structure: Reducing the number of slabs can simplify the tax system, making it easier for businesses to comply.
Addressing Aberrations: Rationalization can correct anomalies where inputs are taxed higher than final products.
Revenue Concerns: Merging slabs like 12% and 18% could lead to revenue loss, necessitating careful consideration.

Easier Compliance: A simplified GST structure would ease the compliance burden on businesses.
Equitable Tax Distribution: Rationalization ensures a fair distribution of tax burden and efficient use of revenue.
Improved Tax Collection: Streamlining GST slabs can lead to more efficient tax collection and reduced compliance costs.

Need for Reform: Rationalizing GST rates is crucial for enhancing the efficiency of the tax regime.
Expected Outcomes: A reformed GST system is anticipated to be simpler, leading to easier compliance, better revenue collection, and overall efficiency in the taxation system.