Gst Bearing Fruit Flashcards
There is no gainsaying that GST has been a game-changer for Indian economy, and its 1.3 billion people. Nonetheless, such an pan-economy change—especially when the economy is of the size and scale as India—was bound to encounter some bumps.
* **While a single-rate structure might have made the tax system simpler, it would neither have been equitable and revenue-neutral nor would it have been acceptable to all states. **
The World Bank in a recent Report had endorsed the GST as a “historic reform” with the long-term benefits far outweighing the short-term adjustment costs. At the same time, the report had also commented that India’s GST multiple rate structure was complex.
***However, it should be pointed out that trying to compare a country of India’s size, diversity and complexity to 115 “comparable” tiny island countries may not necessarily shed light on the most relevant international best practices in VAT rates.
Most large countries that implemented VAT have now settled on having multiple rates. A multiple-rate structure is less regressive, with the higher rates on some commodities compensating for reduced rates on others. Amongst similarly placed federations, Argentina has six rates, from 0% to 27%; Brazil has four rates, from 4% to 18%; China has eight rates, from 3% to 17%; and Russia has four rates, from 0% to 18%. Australia is the only single largest comparable country which has just two rates (0% and 10%), and Canada also has two rates at the federal level (0% and 5%), though there are different additional provincial rates (equivalent to India’s SGST) ranging from 11% to 15%.
What also needs to be kept in mind is that finalising a GST rate is an iterative process as lessons are continuously being learnt. The GST Council, at its 23rd meeting on November 10, 2017, decided that highest rate, 28%, would be applicable only on luxury and “sin” goods. This resulted in a major shift of 177 items from the 28% bracket to the 18% bracket.
* Changes in the rate structure to simplify the framework, or on equity and efficiency considerations, are not uncommon and demonstrate the flexibility and responsiveness of the tax system.*
History and economics remind us that momentous reform measures usually have a positive impact after the initial shock. Going by the current positive trends, and barring significant global set-backs, patience is the order of the day as the economic gains of GST are reaped.
