- One of the most important announcements made by Prime Minister Narendra Modi during his recent Independence Day speech from Red Fort is to usher in much-needed GST reforms by reducing the slabs from the present four to two. As the fiscal experts would vouch, and the common people would chorus, the GST reforms are not only inevitable in the present scenario but also must eradicate several confusing clauses, as well as correct illogical tax brackets on certain products that should not have been there in the first place. Indisputably, the introduction of GST in the country was most welcome to streamline the tax collection across the country. But it’s equally true that the reforms are now overdue to further streamline the same.
PC: Mint
- As you are aware, the whole world is undergoing a tumultuous time on the back of fast-evolving geopolitical and geostrategic occurrences in conjunction with the tariff war unleashed by the petulant Donald Trump. It is tantamount to an understatement to mention that economies around the world are experiencing upheaval. As such, GST reform must be designed in a way that spurs spending as the Indian economy needs it. Make no mistake, India’s proposed GST overhaul can spur demand in the ensuing festive season that starts in about a month. It can also partly offset the impact of Trump’s penal tariffs that have been estimated to shave off up to 0.6 percentage points from GDP growth this year.
PC: India Today
- More reason why it’s important to get this overhaul right. Recollect how eight years ago, GST replaced VAT with the promise of a good and simple system. But there’s nothing good about taxing cream-on-toasted-bun at 18%, when cream and toasted buns are taxed at 5% separately. Nor can three different rates for popcorn – 5% for open, 12% for packaged, and 18% for caramel – be considered simple. These are only the most glaring distortions under the prevalent system. A quick glance over the list of GST rates reveals the bigger problem of classification into luxuries and essentials. By any measure, 28% is an enormous cut for the government to take. It might be justifiable for cigarettes and other sin goods, whose consumption govt wants to discourage.
PC: Swipe
- However, why tax cement at this high rate? Worn-out tyres are among the leading causes of accidents, yet new tyres are taxed at 28%. Why is tooth powder taxed at 12% but toothpaste at 18%? Soap is taxed at 18% across the board, making it a luxury for manual labourers who possibly need it the most. The underlying principle of taxation so far seems to be revenue maximization. Metaphorically, it amounts to squeezing the goose without killing it. With the proposed GST overhaul, India could transition to an economy that keeps the goose happy, stimulating it to lay more golden eggs. Scrapping the 12% and 28% GST rates and shifting most of the goods and services to under them to 5% and 18% rates is most welcome. The economy needs this boost.
