Most states may be averse to rate rationalisation, fearing loss of revenue. But a simplification of the current slabs will also promote economic activity, particularly consumption, that would ultimately lead to higher tax revenues.
Most states don’t seem to be in favour of changes to the existing five main goods and services tax (GST) rate slabs: 0, 5, 12, 18 and 28 per cent. The general argument being advanced is that since gross GST revenues have been growing — from a monthly average of Rs 94,734 crore in 2020-21 to Rs 1,23,608 crore in 2021-22, Rs 1,50,640 crore in 2022-23, Rs 1,68,187 crore in 2023-24 and Rs 1,84,724 crore in April-July 2024-25 — and the rate structure has “stabilised”, why disturb it? It should actually be the other way round. When GST collections are robust, thanks to improved compliance and plugging leakages through measures such as making e-invoicing mandatory for firms with turnover exceeding Rs 5 crore and use of artificial intelligence and machine learning, that is precisely the time for embarking on rate rationalisation. That includes both reducing the number of slabs from five to not more than three, and also reviewing the list of items under each slab.
The incongruity and, probably unfairness, of the GST rates applicable on several items are well known. Why should GST on cement, a basic construction material, be 28 per cent? The same goes for the 18 per cent GST payable on medical and life insurance policy premium, which, in Union Minister Nitin Gadkari’s own words, amounts to taxing individuals seeking to purchase cover against “life’s uncertainties”. There’s similarly no logic to milk not attracting any GST, but skimmed milk powder being taxed at 5 per cent and butter and ghee at 12 per cent. So while dairies pay no tax on milk procured from farmers, they have to shell out GST on both powder and fat used for reconstitution into milk. A 12 per cent GST on milk fat is also an anomaly when vegetable fat (edible oil) is taxed at 5 per cent. Multiple slabs are clearly a recipe for confusion, adding to the complexity of doing business.
Most states may be averse to rate rationalisation, fearing loss of revenue. But a simplification of the current slabs will also promote economic activity, particularly consumption, that would ultimately lead to higher tax revenues. States should, moreover, explore raising more non-tax revenues through revision of user charges on water, electricity and other utility services, besides resetting stamp duty rates and registration fees along with guidance values on property for better compliance. The Indian economy today needs a fiscal stimulus, in the form of lower indirect taxes, rather than higher government spending.
© The Indian Express Pvt Ltd
First uploaded on: 24-08-2024 at 07:07 IST
