GST needs to be simpler: It’s time five slabs plus multiple levies gives way to three-rate structure
The GST Act mandates that the states should be given compensation for revenue shortfall of below 14 percent growth for the first five years of the GST rollout.
The GST Act mandates that the states should be given compensation for revenue shortfall of below 14% growth for the first five years of the GST rollout
With the payment of the dues, the Centre-state tug of war on GST compensation may be over for now, but the larger issues stay
Experts have time and again cautioned that multiple slabs and levies act as a deterrent for small businesses to comply with the GST
The best description that suits India’s revolutionary indirect tax reform, the Goods and Services Tax (GST), is that it was a great idea that was implemented hurriedly. Two-and-a-half years after its rollout, the GST may have reached a point of requiring a major rework. Till now, the GST bandwagon has faced several roadblocks, the latest being the Centre vs states tussle on the compensation promised to states for the possible revenue losses.
Under pressure and after the delay tactics, the Centre on Monday released Rs 35,298 crore to the states and Union Territories, something the Centre had promised states through an Act when GST was launched on 1 July 2017.
The GST Act mandates that the states should be given compensation for revenue shortfall of below 14 percent growth for the first five years of the GST rollout. According to reports, the states have not received compensation for the months of August and September. Compensation for the period October-November would also be due after 10 December.
The Centre was supposed to collect the compensation amount from levies on tobacco products, cigarettes and aerated water and pass to the states every two months. But, since this amount was pending from August, states were unhappy with the Centre.
With the payment of the dues, the Centre-state tug of war on GST compensation may be over for now, but the larger issues stay.
Compensation delay for states is only one issue. The larger question is the promise of a simpler GST. The GST was introduced as one nation, one tax rate system. But the structure began with five slabs and additional levies. It was justified citing the complex market the country has and geographical differences that made too much of simplification in rates difficult in one go. But, the idea was to converge to a three-rate structure or even two rates after the initial phase. Why is it necessary? Experts have time and again cautioned that multiple slabs and levies act as a deterrent to small businesses to comply with the GST.
Two key economists who have associated with the Narendra Modi government, Arvind Subramanian and Bibek Debroy, have made a strong case for a three-slab GST structure. The current GST model needs a major revamp—not mere tweaking the rates—but in the structure itself. With the GST nearing the third anniversary of its roll-out in India, it is time for the GST Council and the government to consider a three-slab structure, instead of the present five slabs.
The 38th meeting of the GST Council — the highest decision-making body of the new indirect tax regime — will be held on Wednesday.
According to Debroy, there should a 6 percent, 12 percent and 18 percent structure. Even the former chief economic advisor, Subramanian, had suggested a structure on similar lines too. Doing this will make the GST structure simpler and closer to the original idea of a truly simpler indirect tax regime.
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