Complex GST Slabs Fuel Illicit Trade Growth
India’s ambitious Goods and Services Tax (GST) regime aims to simplify taxation. However, the introduction of complex GST slabs may be unintentionally fostering illicit markets, particularly in sectors like tobacco and textiles. This article explores how these multiple slabs encourage illegal trade, impacting the economy and legitimate businesses.
💸 The Rise of Illicit Trade in India
Recent data highlights alarming growth in black markets due to high GST rates on specific goods. The Directorate of Revenue Intelligence (DRI) revealed advanced smuggling methods, such as concealing contraband in books, wigs, and clothing. This surge threatens the vision of ‘Viksit Bharat 2047’ by:
- Undermining legitimate businesses
- Distorting fair competition
- Reducing tax revenues
- Financing organized crime and terrorism
📊 Tobacco Industry: A Case Study
The tobacco industry, historically subject to punitive taxes, offers a clear example of how complex GST slabs boost illicit trade. Key statistics:
| Metric | Value |
|---|---|
| Illicit Market Growth (2018-23) | 17.7% (From ₹25,495 Cr to ₹30,012 Cr) |
| Share of Illicit Cigarettes | 26.1% |
| Employment Impact (2013-23) | 238 Million Man-Days Lost |
Case Law Insight: The Madhya Pradesh High Court recently highlighted flaws in GST enforcement, noting how excessive tax rates often lead to evasion rather than compliance.
🛍 Textile Sector: Rising Illicit Trade
The textile industry is also grappling with a growing black market. Between 2017 and 2023, illicit trade in textiles surged by 29.67%, with the market size increasing from ₹3.11 lakh crore to ₹4.03 lakh crore.
Impact on SMEs: Smaller businesses struggle with compliance due to limited resources, while larger corporations adapt more easily. This disparity fuels illicit trade, harming SMEs and reducing government revenues.
🔧 Simplifying GST to Curb Illicit Trade
Countries like Canada offer valuable lessons. By reducing tobacco taxes in the 1990s, Canada curbed cigarette smuggling significantly. India’s experience shows that punitive taxation often fails to achieve its goals. Instead, simplifying GST slabs can:
- Reduce Illicit Trade: Lower incentives for tax evasion.
- Boost Revenues: Increase compliance and collections.
- Protect Businesses: Ensure fair competition for SMEs.
- Support Livelihoods: Safeguard jobs in affected sectors.
🏦 Economic Impact of Simplified GST
India’s GST revenues have doubled since 2017, reaching ₹2.10 lakh crore in April 2024. This growth followed the government’s decision to reduce items under the 28% slab. Introducing new, higher slabs may jeopardise this success by complicating compliance and encouraging evasion.
📈 Conclusion: A Call for Simplification
To achieve the goals of ‘Viksit Bharat 2047’, India must reconsider complex GST structures. Simplifying slabs can:
- Curb illicit markets in tobacco, textiles, and beyond.
- Support SMEs and legitimate businesses.
- Increase tax revenues through better compliance.
Balancing taxation and enforcement is key to reducing black markets and fostering economic growth.