India’s Finance Minister moots the possibility of a single tax rate on standard items amid continued criticism of the government’s GST regime

(Image source- Reuters)

• Arun Jaitley has said the government is mulling the possibility of merging two tax rates on standard items, which are 12% and 18%, into a single rate of 15%.
  
• At present, the GST regime has four separate slabs - 5%, 12%, 18% and 28%, the last of which is reportedly on its way out and will only be levied on “luxury and sin goods” in the future.
  
• The GST regime has not resulted in the accumulation of increased tax revenues as hoped. The average monthly tax collected this year is around ₹971 billion, which is less than the ₹1 trillion the government was targeting.
  

Between the demonetisation initiative and the ostensibly botched implementation of the Goods and Services Tax (GST) regime, the Modi administration’s most strident critics have had plenty of fodder.

However, in a Facebook post entitled “Eighteen Months of the GST”, India’s finance minister, Arun Jaitley, looked to dispel some oft-levied gripes against the policy, which includes a claim that the 28% slab is too high.

Jaitley explained that prior to the reform’s implementation, the value-added-tax regime levied a 31% indirect rate on most items in addition to state-specific cesses and excise duties. The prior taxation system included as many as 17 different rates on the same product.

He also said that the government was mulling the possibility of merging the two tax rates on standard items, which are 12% and 18%, into a single rate of 15% in order to make the enforcement and compliance of the taxation system simpler. This is part of the “one nation, one tax” approach envisioned under the reform.

At present, the GST regime has four separate slabs - 5%, 12%, 18% and 28%. At the time, the government justified the multiple rate system by saying it ensured that the indirect tax rate on an item did not fall significantly.

The 28% slab is also reportedly on its way out, and will only be levied on “luxury and sin goods” like large televisions and cigarettes. Only 27 items remain in the highest slab, a drastic decline from the 228 items when the GST was introduced in July 2017.

Jaitley’s comments followed the revision of rates this past weekend. The rates on 22 items were reduced, a nice sweetener ahead of national elections next year. Seven commodities including cameras and farming implements, were taken off the 28% slab.

Cement and auto parts were supposed to be taken off the 28% slab as well, but the government decided against this for the time being as the resulting decline in tax revenues would be too much to stomach.

Despite its suggested benefits, the GST regime has not resulted in the accumulation of increased tax revenues as hoped. While the average monthly tax collected has increased to ₹971 billion in the financial year so far compared to ₹897 billion in 2017-18, this is significantly less than the ₹1 trillion the government was targeting.

In a radio interview yesterday, Jaitley said that the central government was having a difficult time meeting its collection targets owing to lower contributions from the telecom and airline sectors, both of which feature a high level of price competition between incumbents resulting in lower prices.


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