Reform of GST: Options and optics

The tools available are a reduction in the number of tax rates and structuring or restructuring the compensation cess

- R KAVITA RAO

There is a lot of anticipation regarding the next phase of reforms of goods and services tax (GST). It is learnt that the Prime Minister's Office has given an in-principle nod to a revamp of GST. The stage is now set for discussion and decisions in the GST Council. This note is a thought experiment to explore options and implications of possible reforms focusing on revenue considerations. The concerns that could guide choices in the reform agenda are those of governments and the taxpayer/consumer community. For governments, there could be a need to increase the effective tax rate. In a reply to a question in the Lok Sabha on February 11, 2025, Union Finance Minister Nirmala Sitharaman said the average GST rate for 2023-24 was 11.64 per cent in comparison to 15.8 per cent in the pre-GST era. At the very least, the present average rate and the associated revenue performance need to be sustained. On the other hand, as would be expected, taxpayer/consumer aspirations would argue for a reduction in the number of tax rates.