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Q. GST rates: Comment on recently released GST rates.
May 22, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently the Goods and Services Tax (GST) Council which met in Srinagar has released details of the rates at which over 1,200 goods will be taxed when the GST regime takes effect. The process of rate fitment has been a subject matter of speculation for months now finally over with release of the new indirect tax rates that will apply to thousands of goods and services. Now GST council has offered better clarity and the July 1 rollout of the tax also looks more likely now with the Council showing its intent to get things going.

New indirect tax rates-

  • Under GST regime the initial list of 1,211 items, the predominant share (43%) of goods will be taxed at 18%, while 17% and 14% of the notified items will fall under the 12% and 5% tax rate slabs, respectively. 
  • Around 7% of the items, which include essential goods such as milk, fruits, cereals and poultry, have been exempted from all taxes. A significant share ( about 19%) of goods has been taxed under the highest tax slab of 28%.
  • Apart from these four regular tax slabs, additional cess taxes of varying rates have also been imposed on sin and luxury goods such as pan masala, cigarettes and sport utility vehicles to compensate the States for loss of revenue during the initial years.

Analysis-

  • The four-slab structure of the GST regime gives it the look of a progressive tax code, in contrast to similar consumption-based taxes prevalent in other countries, which are essentially simple, flat taxes. 
  • Though the progressive taxation may be justified given the wide disparities in income levels in India, but many argues that the principle of simplicity is being compromised to some extent.
  • The new tax regime disappoints on earlier expectations that the top tax rate would be capped below 20%. Hence the middle class will now have to bear the brunt of higher prices. 
  • Now, the challenge going forward is to prevent backdoor rigging of rates through additional levies that are completely discretionary. States that have added significantly to their debt burden in recent years must be kept in check. 
  • If additional discretionary taxes have not checked effectively, it would add to the overall tax burden and particularly compromise on tax predictability and compliance. 
  • Hence the Centre and States must keep their pressing fiscal demands from influencing tax rates upwards in the future, else the decision to do away with tax competition among States, in favour of a simple centralised tax system will not bring desired result.

Conclusion-

The process of rates fitment was long overdue, hence releasing the tax rates of GST regime is welcome move and now we can expect rollout of GST from July 1. Though GST council has adopted progressive taxation policy, but it the intent to make simplified is not that satisfactory. The upper cab was expected at below 20%, but it has been not fulfilled, hence the government should ensure that no state government should tax any additional taxes in coming days.


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