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GST council reached a consensus on the rate structure which starts from exempted goods without any tax, tax rate of 5% on essential commodities, and standard rate of 12%, 18% and 28%. For luxury goods and tobacco, it would be tax plus cess. This would be a hallmark in India’s aspiration towards uniformity of indirect taxes.
GST | Why multiple tax rates are adopted?
- A single tax was supposed to be a very high tax rate which would have had inflationary effects on the economy.
- It would be easy for the Government to reduce the prices of essential commodities now and control the sale of luxury goods via higher tax rate. This goes in favour of progressive taxation doctrine.
- The proposed cess (on sin goods like tobacco and luxury cars) would compensate the loss of revenue on implementation of GST and would act as a revenue source for the Government.
- More than half of the items covered under CPI would come in the 0% to 5% slab of tax rates.
GST | Challenges in implementation
- Building up the infrastructure.
- Assessment issues regarding which base to use for assessment of invoices.
- State and Central bureaucratic synchronising hurdles.
- Logistics problem during inter-state transfer of goods and services.
- Lack of clarity about the tax structure on services covered under GST manual.
GST | Creating Awareness
- Awareness regarding how to move from the origin based tax to destination based tax.
- Need to generate awareness regarding how to improve Indian economy by creating a manufacturing base, creating more employment and increasing compliance.
- Government also needs to create awareness regarding how GST reduces the harassment to people by reducing the number of assessing officers.
- Awareness needs to be created in State level bureaucratic structures regarding how to minimise the intra-state, inter-state disparities and difference of opinions (due to GST being destination based tax).
GST | A unifier?
- After 5 years when the Centre stops reimbursing the loss of revenue to the States, the state machinery would become less relevant than that of the central government. It might create a unitary Indian State with a strong centre.
- A strong centre with good revenue would circumscribe issues of secession at the origin itself because of the availability of funds and ability to clamp down via strong hold over State Governments.
- Facilitation of smooth inter-state trade would bring fiscal incentives for unification.
- Destination based taxation structure would add as a catapult of growth for underdeveloped states because of revenue maximisation. (For example – Ford car travels from Gujarat to be sold in Bihar, GST would be levied in Bihar, thus Bihar gaining revenue)
- This unification would create a better framework for growth and development. The dream of Unity among diversity would get a sure boost through the centralisation of funds.
- A strong and unified state would be able to exert maximum political influence and thereby create maximum avenues for foreign investment, which is a cure for many economic diseases.
- Instead of the centre transferring the revenue to the states, the states would also have their own revenue because there will be one assessing officer for one assesse and the one assessing it (Centre or the State) would earn the revenues accordingly. This would augment well for the cooperative federalism structures.
GST | Conclusion
GST is the biggest tax reform of independent India. It gives India a subscription of many successful federal states like Australia which have successfully imbibed the uniformity in indirect tax structures and glorified their economic development with maximisation of revenue and minimisation of hassles for both businesses and consumers.