Rationalising GST

The taxpayers will like Finance Minister Arun Jaitley’s statement that the government is working on a single GST rate for most goods. India has been straddled with one of the most complex GST structures in the world, and thus any attempt to simplify it is welcome. Indeed, the top slab of 28 per cent has seen goods moving down to the 18 per cent slab, and after cement and auto parts are also transferred to the lower bracket, only luxury and ‘sin’ goods will remain there. 

There is, however, concern among some states that their share of the GST is not adequate. In the 10 months since the GST rolled out, Punjab has reported a shortfall of 37 per cent in revenue collection. Himachal Pradesh too has not performed well. It was at the instance of such states that the Centre had to concede to creating a backstop facility to pay compensation for three additional years after the 2022 expiry of the initial five years. This would help the states to make up for the loss of revenue they face.

The hasty rolling out of the GST is often blamed for the difficulties that governments and citizens faced after it was introduced in July 2017. In time several hiccups were reduced. By now it has been widely accepted and is seen as functioning reasonably smoothly. Even as the announcement of removing goods from the top slab was widely welcomed, the populist nature of the timing of the statement cannot go unnoticed. Such temptations are difficult for any incumbent government to ignore as elections approach, but they must be tempered with the knowledge of the price of populism that comes at the cost of fiscal responsibility. The one-GST goal is an ideal that may be approached, but may not be achievable. Subsuming various tax slabs into two seems more practical. But then, it does not make headlines like the ‘one slab’ statement does.