GST reform: Landmark, but only half done

Rate rationalisation is welcome, but more work is needed to eliminate cascading taxes

- M GOVINDA RAO

The Goods and Services Tax (GST) Council should be complimented for breaking the "tyranny of status quo" by restructuring and reducing the number of GST rates. Following the Prime Minister's Independence Day address, which promised a Diwali gift of lowering the tax burden, there were optimistic expectations of a reduced rate, a simpler structure, and greater ease of tax payments. Credit goes to the Union finance minister, as chairperson of the GST Council, for persuading the members to unanimously adopt the decision to restructure the tax into two major rates by moving most items under the 12 per cent slab to the 5 per cent category, while also implementing measures to speed up registration and ensure faster refunds.

International experience shows that there is no "one-size-fits-all" system of value added tax (VAT). Each country adopts a variant of VAT, depending on political acceptability and convenience. However, if some bad features, such as large-scale exemptions, too high or low thresholds, or multiple rates creep into its implementation, it is very difficult to remove them later. However, if restructuring is done to reduce the tax burden, it gets universal acceptance. Not surprisingly, the decision to reduce the number of rates has been welcomed by all. While there was apprehension about revenue loss among the non-National Democratic Alliance-ruled states, the finance minister seems to have allayed their fears. In any case, they too do not wish to be seen as obstructionists.