GST rates need smoothening

The GST regime, having recently celebrated its sixth anniversary, stands as a remarkable achievement in the Indian tax landscape. Over this time, it has made substantial contributions to GoI’s financial coffers.

To provide a snapshot, the gross collection for FY2023 reached an impressive Rs.18.10 lakh crore, with an average monthly collection of Rs. 1.51 lakh crore for the year. This fiscal year’s gross revenues marked a 22% increase over the previous year. This remarkable progress was highlighted by the World Bank in its India Development Update Spring 2023.

Nonetheless, it’s imperative to acknowledge the World Bank’s update in 2018, which drew attention to the global landscape of GST systems vis-à-vis India. Among 115 countries implementing GST, 40 utilise a single tax rate, and 28 others employ a dual-rate structure.

India is one of the few countries to have opted for a more intricate structure, featuring four or more tax slabs, GST slabs in India are 0%, 5%, 12%, 18% and 28%. The complexity escalates as cess is applied to certain luxury and ‘sin’ products, such as cars.

HSN classification, which serves as the basis for GST categoristion, adheres to an internationally accepted system developed by the World Customs Organisation. In India, this system is extensive, comprising 21 sections, 99 chapters, 1,244 headings and 5,224 sub-heading.

Each section and chapter encompasses broad categories of goods, while headings and sub-headings provide intricate details.

Classification criteria are diverse, considering factors such as end use, principal purpose, ingredients and manufacturing processes. As society evolves, with an increasing variety of customizable products, detailed classification may not suffice to mitigate litigation.

In the current GST system, a bar of chocolate bears an 18% GST rate, while a bar of gold attracts only 3%. In the lights of stable GST revenues and persistent litigation, it is evident that a move towards reducing the slabs and rationalizing the rates is necessary.

Significantly, back in 2015, a committee led by the-chief economic adviser Arvind Subramanian proposed a three-tier GST structure. This included a standard rate of 17-18%, which would encompass the majority of goods and services, a lower rate of 12%, and a higher rate of 40% for luxury and ‘sin’ goods.

While the concept of ‘One Nation, One Tax’ may not necessarily translate into a single GST rate restructuring is the need of the hour.