Why Complex GST Slabs May Hinder Compliance
India’s GST system was designed to streamline taxation and boost compliance. However, introducing new slabs, like the proposed 35% rate, may derail these goals. A complex tax structure can encourage black market growth and hurt legitimate businesses. Let’s break down the potential pitfalls of these changes and what we can learn from recent data and global practices.
🔄 Simplified GST Structure Boosted Compliance
Since the introduction of GST in 2017, India’s tax collections have surged. Monthly GST revenues doubled from 2017-18 to 2023-24, reaching a record ₹2.10 lakh crore in April 2024. This growth followed the government’s decision to reduce the 28% slab items from 224 to just 50. Simplified structures clearly improve compliance and collection.
🔧 Impact of Complex GST Slabs on Black Markets
Industries with high tax rates, like tobacco and textiles, have seen alarming growth in illicit trade:
| Industry | Illicit Market Growth | Revenue Loss (₹) |
|---|---|---|
| Tobacco | 17.7% (2018-23) | ₹30,012 crore (2022-23) |
| Textiles/Apparel | 29.67% (2017-23) | ₹4,03,915 crore (2022-23) |
Case Law Reference: The Directorate of Revenue Intelligence (DRI) report for 2023-24 highlights sophisticated smuggling methods, such as hiding goods in wigs, shampoo bottles, and clothing. High tax burdens make black market alternatives more attractive, leading to lost revenues and undermining compliance.
🔔 Tobacco Industry Case Study
The tobacco industry’s experience is a cautionary tale:
- Illicit Cigarette Market: 26.1% of total market
- Legal Consumption (2011-23): 🔻 9%
- Illicit Consumption (2011-23): 🔼 70%
Despite high taxes, overall tobacco consumption increased by 49%. This shows that punitive taxes push consumers towards illicit products rather than reducing consumption.
🌐 Global Best Practices
Countries like Canada successfully reduced cigarette smuggling by adjusting tax rates. Lower taxes helped curb illicit trade, showing that balanced taxation promotes compliance.
📊 Key Takeaways for GST
- Simplification Works: Reducing slabs promotes compliance and boosts collections.
- Complexity Breeds Evasion: High rates encourage black markets.
- Global Lessons: Balanced taxes can reduce illicit trade.
- Sectoral Impact: Industries like tobacco and textiles are most vulnerable.
🚀 Towards a Smarter GST
Rather than adding new slabs, India should focus on simplifying GST. A streamlined system benefits both taxpayers and the economy, aligning with the vision of Viksit Bharat 2047.