Should one GST rate be applied on all products? Chairman of advisory to PM thinks so

The much discussed Goods and Services Tax was supposed to simplify taxation, but despite unifying levies, it has created another hassle for businesses and consumers to figure out how much GST is charged on which product. For instance, recently there has been confusion about GST charged on parottas and rotis, and the basis for setting different rates for both. This can be addressed if a single rate of GST, without any exemptions is applied, as suggested by Bibek Debroy, the chairman of the Economic Advisory Council to the Prime Minister.

Government spending more than it collects

The government’s fiscal spending is higher than what it makes from levies including the unified goods and services tax, which has surpassed a monthly collection of Rs 1.5 lakh crore, twice since it was introduced. But the government still needs to amp up expenditure on infrastructure, while the GST only accounts for 15 per cent of the GDP, as per Debroy. According to him, removing the different rates for products and services considered elitist in nature and those fit for mass consumptions, will reduce litigation.

Differential rates hitting revenues?

Although he made a case for a standard GST rate, Debroy stopped short of pushing forward the idea as a recommendation of the council. To show how the differential rates affect GST collection, Debroy mentioned how the neutral rate for GST before the rollout was 17 per cent, while now it has come down to 11.7 per cent. He also added how tax avoidance is legitimised through use of exemptions provided under the current GST regime, while evasion remains a crime, and questioned why any goods should be exempted at all.

Debroy also went on to highlight how the government was losing out on tax revenue equivalent to more than 5 per cent of the GDP, because of the exemptions to GST. Among other changes, he also suggested removing the difference between corporate and personal income taxes.

Published on: Monday, November 07, 2022, 07:39 PM IST