GST Rate Rationalisation: Mixed Reactions from States
The proposed GST rate rationalisation by the Group of Ministers (GoM) has sparked a divided response among Indian states. While some states support the reform, others are wary of its timing due to economic uncertainties and potential impacts on consumption.
The Debate: Why States Are Concerned
Several non-GoM member states have voiced concerns about implementing GST rate changes amidst challenging economic conditions. These states suggest deferring the changes until consumer spending shows a clear upward trend. Their argument revolves around ensuring that any reforms do not dampen economic recovery or negatively impact consumption patterns.
Support for Insurance Rate Changes
Interestingly, most states agree on rationalising GST rates for life and health insurance premiums. They believe that this specific change could be a prudent first step before a broader overhaul of GST rates.
The upcoming 55th GST Council Meeting on December 21 in Jaisalmer will be crucial. The GoM on rate rationalisation is expected to present its final report, which could shape the future of India’s GST structure.
Luxury Goods: Higher Rates, Higher Risks?
One major proposal under consideration is increasing GST on luxury and sin goods to 28%. This includes:
- Wristwatches priced above ₹25,000
- Garments priced above ₹10,000
- Shoes priced above ₹15,000 per pair
While this aims to boost GST collections, Ved Jain, Past President of ICAI, warns of unintended consequences:
- Revenue Leakage: Higher rates may encourage consumers to shop abroad to avoid taxes, leading to revenue loss.
- Tax Evasion: Differential rates could tempt businesses and consumers to avoid taxes through unregulated markets.
Tobacco and Beverages: A Proposed 35% Rate
The GoM has also proposed increasing the GST rate on tobacco products and aerated beverages from 28% to 35%. This move, coupled with existing cess charges, raises concerns about:
- Excessive Tax Burden: Steep rates could hinder compliance and incentivise black-market sales.
- Complexity in Tax Structure: Introducing more slabs contradicts the original goal of GST—a simplified “One Nation, One Tax” system.
Balancing Growth and Revenue
India’s GST system was designed to simplify taxation, reduce compliance burdens, and foster economic growth. However, frequent changes and higher slabs could:
- Reduce Ease of Doing Business
- Hamper Economic Growth
- Increase Compliance Challenges
A balanced approach is necessary to ensure revenue generation without stifling economic progress.
Conclusion
The GST rate rationalisation debate highlights the delicate balance between reforming tax structures and supporting economic growth. The decisions made in the upcoming GST Council meeting will have long-lasting implications for businesses, consumers, and the Indian economy.