GST overhaul: A positive reform that'll have fiscal consequences

India's revised GST regime is more coherent and rational than what it replaced but big rate cuts will pose revenue challenges

- INDIRA RAJARAMAN

Sweeping rate reductions in the goods and services tax (GST) came into effect from 22 September. Although coherent and much better structured than earlier rate reductions, the impact on tax revenue this year and the next is expected to be negative. Eerily with effect from the same date, a sharp rise in fees on certain types of work-visas for entry to the United States snapped in, which will enhance the US government's non-tax revenue, among other objectives.

India's GST reform eliminates two levy rates, 12% and 28%, and reassigns those items to the retained rates of 5% and 18%. Most items went downwards; a few like paperboard and higher-valued garments moved up from 12% to 18%. The 3% rate for gold remains, as does the punitive rate of 40% (with the compensation cess folded in). The zero rate remains (different from exemption), and some 5% (or higher) items have moved to zero. Overall, the average rate of levy has been reduced.