GST Rates In India
We commend adoption of the goods and services tax, the biggest tax reform since Independence, to create a seamless common market. Prime Minister Narendra Modi, President Pranab Mukherjee, and finance minister Arun Jaitley have done well to acknowledge that political collaboration and the spirit of cooperative federalism ensured the transition to the new tax paradigm. The GST Council, a collective body of the Centre and states, deserves to be lauded for its consensus-driven approach to transact the legal changes needed to adopt GST Rates on July 1.
Rightly, the PM billed this as a good and simple tax that would subsume and eliminate the previous cascade of 17 central and state taxes and 23 cases, leading to efficiency gains and lowering retail prices. The audit trails the levy creates would curb evasion, widen the tax base and boost collections, both in indirect and direct taxes. The GST network that provides the IT infrastructure for taxpayers to pay tax, file returns and claim refunds, without having to interface with a tax official, except if taken up for audit and scrutiny, is a major innovation.
Sensibly, businesses have been given more time to file returns in the first two months. This will make the transition smooth: companies need time to recast their accounting systems for full compliance. Compliance should be easy, and taxpayers must not be harassed having to deal with two sets of administrative bureaucracies for the tax. Industry’s fear that the anti-profiteering clause may be a perverse incentive to routinely suspect the pricing policy of producers is not misplaced. It must have a sunset clause. An institutional mechanism to assess the experience of GST as it rolls out to make swift course correction makes sense.
Ideally, we should have started with low rates, achieved compliance and acquiescence, and pushed rates up gradually. Multiple rates are not inherently inimical to GST but make administration a little complicated. It is still possible to reduce the rates and the number of rates, as government gathers experience implementing the new tax.