Dr. Sanjiv Agarwal

Time and again, there is a demand being raised from various quarters on the number of GST rate slabs in India. Under a now 14 months old GST regime in India w.e.f. 1st July, 2017,  Goods and Services Tax (GST) is levied and collected under four broad tax rates, viz, 5%, 12%, 18% and 28%. However, there is a upper ceiling of 40% GST under the law upto which GST would be levied.

Presently only a handful of nations have 3 or more rates. There are only 5 countries where four or more tax rates are levied. About 50 countries have just one rate while about 30 countries have two tax rates.

Apart from these specific rates, we have zero rated supplies, exempt supplies and nil rate of GST. In certain cases, there are special rates as in case of textiles, footwear, jewellery etc. To top up the revenue and balance the tax rates, a Compensation Cess is also levied on various specified goods.

Given the socio-economic pattern of Indian society and economy, can we live with one GST rate which is applicable to all types of goods and services, as it is in many countries successfully levied in GST or is it desirable to have multiple rates of tax, as are presently in force ? Should we have two slabs instead of four ? Can the slabs of 12% and 18% be converged to one rate of about 15% or 16% ? Discussions keep on taking place but with  no conclusive end to it.

India is a nation and economy with many heterogamous segments in society  and economy in terms of consumption, ability to pay, economic contribution, business domination, protection to domestic industry and so on. While it largely convincing that we may have multiple rates of tax, some convergence may look like a balancing act and shall surely bring in harmony in tax collection and some balancing act too. Inflation is also an issue which is linked to GST rates.

While India is projected to have annual growth rate of 7-8 percent in next few years which is considered to be a fastest in last few years, rationalization of GST rates could benefit industry as well as tax administration, besides reducing possible litigation on rates and classification.

International Monetary Fund (IMF) has recently in its annual report expressed that India is on a track to be one of the fastest growing economy in the world and that further rationalization of GST inter alia, would give maximum benefits, including labour reforms) for companies to expand. However, it also flags certain areas of concerns such as high oil prices, frightening of global financial condition, shortfall in tax revenue etc. It acknowledges GST as one of the biggest economic reform but advocates for a simplified GST and only two rates to facilitate compliances and check administrative overheads. A standard lower rate could be made applicable to most of the items whereas a higher rate levied own few select supplies so much so that it balances the revenue collection and achieves the target revenue growth.

Though GST Council, the apex decision making body for GST is seized of the matter and is authorised to make recommendations in this behalf, following form of rationalization may be looked at:

Present Rate Proposed Rate
Zero / Nil Zero / Nil
5% 6%
12%  

15%

 

18%
28% 25%

This may later be further rationalized with zero percent and 25% percent still being on the board. As the countrymen become used to GST, revenues build up, compliances increase and people respecting reasonable profiteering with seamless input tax credit mechanism, India should look at a median rate of 10 to 12 percent by converging all other rate slabs.

Going forward, this should be the approach which may be debated by tax collectors, tax payers and all stakeholders of GST.

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