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Four slabs in the GST milestone: The tax crosses another hurdle
In a country like India, with its various political and social contours, setting multiple rates perhaps is the only way forward. This will also ensure that there is no additional burden on the common man. It is better to move ahead with a not-so-ideal GST structure than not have it at all
The country’s policymakers have reason to cheer, with the goods and services tax (GST) rates having been finalised late last week. This no doubt takes care of a very thorny issue and paves the way for the rollout of the new indirect tax structure by April 1, 2017. The opposition, the Congress, had been demanding a cap of 18% on the GST rate. Kerala, on the other hand, wanted the peak rate higher than 18%. Thomas Issac, finance minister of the CPI(M)-led Left Democratic Government (LDF) government, has been opposing capping the peak rate at 18%, saying that it will impact the state’s revenues. The Centre, for its part, was opposed to capping the rate at 18% and wanted to set a much higher tax rate for “sin” products.
Read: Central, state finance officials fail to break deadlock over GST
The GST Council, the highest decision-making authority on the new tax, finally agreed on a four-slab rate structure — 5%, 12%, 18% and 28%. The so-called “sin” or “demerit” products such as tobacco items, aerated drinks and luxury cars, which will come under the highest tax slab, will also attract a cess — taking the total to about 40%. To keep inflation in control, several food items comprising half the consumer price index basket will be taxed at 0%. So essentially, this means that there will be more than four slabs.
Read: GST Council sets rates, four main tax slabs ranging from 5% to 28%
An ideal GST, typically, has a standard rate with a plus and minus rate. Many will argue that the multiple tax slabs will lead to confusion. But in a country like India, with its various political and social contours, setting multiple rates perhaps is the only way forward. This will also ensure that there is no additional burden on the common man. Union finance minister Arun Jaitley, in his blog earlier, wrote that different items used by different segments of society must be taxed differently. It is better to move ahead with a not-so-ideal GST structure than not have it at all. The tax reform will improve competitiveness and boost ease of doing business. However, what immediately needs to be done is a classification of goods to set their tax rates. This has to be done through a well-thought-out strategy. The GST law will also have to address the issue of dual administration for assessment and audits — the decision on which was postponed on Friday. One hopes the decision is taken when the GST Council meets next on November 24 and 25.
