GST with Multiple Tax Rates: Boon or Bane?

INTRODUCTION

The government of any country collects its revenue from taxes; hence for the development of the economy of the state, a well structured taxation system is necessary. If we look at the World Bank report on the ease of paying taxes, India was ranked 172 among 190 countries. The implementation of the Goods and Services Tax has been considered as one of the major steps taken in order to achieve better indirect- tax system. Previously, the taxes were levied at each stage separately, by the centre and by the state at different rates. But Goods and Service Tax (GST), implemented in 2017 was projected at creating a single and unified taxation system which would disrupt all the tax barriers between the state and the country. It was passed for the welfare of everyone but has been criticized by Asian development Bank and many others. The primary reason of it was multiple tax slabs are being used for the calculation of the tax for different goods and services.

OBJECTIVE

The primary objective of the essay is find out whether the GST bill implemented by the Government of India which uses multiple tax rates for different goods and services, is feasible in the Indian scenario. It will also try to find out why the government opted the multiple tax rate system.

THE MULTI RATE STRUCTURE: BOON OR BANE?

The primary reason for implementing the GST was to attain the uniformity in the tax structure of the country so as to free the people from the partiality faced by them. The other reasons were to remove red-tapism, make the taxation system much simpler and impactful. But after analyzing the current GST system, it can be found that this system is also a complex one. The current GST system seems far from perfect.

The critics of this multiple tax systems argue that if the object of imposing the GST was to get the uniform tax structure, then why we have the system which contains the different tax rate(in total seven) for the different goods. The Government says that the complete uniform taxation will be dangerous in the Indian scenario and bringing them under the universal tax scheme of any name will be a great injustice to the people. They have divided the different types of goods such as necessary, luxury goods etc. Those goods which are necessary for human survival and which constitute nearly fifty percent of the Consumer Price Index Basket such as food items. These are exempted from the GST (there will be no tax on these goods). According to GST council the objective of the GST is to ensure the welfare of the common man and if it will of the same rate for every good and service it will be burdensome for them.

Some have suggested that multiple tax rate is disadvantageous to the GST and would neutralize some of the advantages of a uniform tax structure. The reality is that a multiple tax rate in India is inevitable for several reasons. The reason behind it is that the tax cannot be uniform for the items which are used by the different segment of the society. If we consider item such as wheat which is needed for human survival and diamond which can be bought only by rich people and the tax imposed on both the goods be same. The objects of the uniform tax may be achieved but the impact it will have on the weaker section of the society will be very regressive. Though the object of the government is to collect more and more tax but it can’t be against the idea of the Socialism. Also, the uniform GST would have caused inflationary affect on the various objects.

Also, in the Indian markets, sometimes two goods, which come under different tax rate, are sold in the same packets such as festive pack of sweets which can contain two different goods (and ideally should attract two different GST rates). In the super market, where the different things are sold and a person who buys goods (having different rates), the process of calculation of taxes become a complex one.

The other problem which was pointed by many people was potential trouble arising from the tax brackets into which nearly identical products and services will fall into. If the two goods or services are supplementary and suppose the GST rate for those two goods are different, the manufacturer company will try to innovate and want to give those services which attract less tax. This will make the compliance of the GST much more difficult. The government has a different view on this, they say that though it is easy for smaller business man to innovate things but it is not for the large scale businesses.

CONCLUSION

The new GST is a great departure from the GST originally visualized. The present Taxation can’t be called GST, in fact it should be called modified GST. The GST is all about universal taxation but the current system does not seem to be universal. But in the Indian scenario, the modified GST looks better, as it tries to achieve the objective of tax neutralization. Also, it tries not to pose too much a burden on common people. The GST is one step forward to achieve a better taxation system and should be considered as a “start of a process”.

(Author- Ishant Jaiswal, B.A. LLb. , 2^nd year, West Bengal National University of Juridical Sciences, Kolkata)

Compiled by GSTstreet for #GSTManthan