GST Reform a Relief for Lower-Income Groups

The Central government’s proposal to have only two slabs -- 5% and 18% -- Goods and Services Tax (GST) instead of five, is a welcome relief as it will ease the financial burden of people belonging to the marginal and lower-income groups as well as increase demands in the domestic market which is not rising as expected. The current GST structure is being labelled as one of most complex indirect tax structures in the world. Huge paperwork, filing of multiple returns and complications in solving disputes over classifications, etc. associated with the GST, the biggest tax reform introduced in Independent India, caused much inconvenience to the citizens. So, reducing the GST slabs will make the complex indirect tax regime simple for business establishments and improve the ease of going business. Another interesting aspect of the proposed tax reform is plan to impose a 40 per cent tax on ‘sin goods’ like alcohol and tobacco, etc. This will make goods that are harmful to health costly, which may help reduce consumption.

The GST journey, which began during Atal Bihari Vajpayee’s regime, was rough with several states initially opposing the ‘one nation, one tax’ policy over fear of revenue loss, before a consensus was reached on compensation package. The new tax regime was finally implemented in 2017. It may be mentioned that the emergence of the Bharatiya Janata Party (BJP) as the principal political force in the country helped in finalising the tax reform as most states were under its rule besides at the centre. A couple of opposition-ruled states like West Bengal and Jammu & Kashmir were reluctant to accept GST but they were left with no other options. Even regimented party like the Communist Party of India (Marxist) was divided on the issue with its unit in Kerala supporting it while the party’s highest decision-making body -- the central committee -- was in favour of further discussion.

In the meantime, the GST was not without criticisms; the demands for easing it started gaining grounds due to its complex nature. After several rounds of talks with the stockholders, the central government has finally decided to introduce a two-slab system along with a separate slab for goods classified as ‘sin goods’. But the joy of having a simpler GST may be short lived if we cannot maintain the delicate balance between the global trade and domestic reliefs. The US is forcing New Delhi to reduce the tariffs with an intention to make inroads into the Indian market. Reports from Washington claim that India has already agreed to lower tariffs by nearly nine percentage points. If this turns out to be true, it will affect domestic industries. So, the government should remain vigilant and protect the domestic industries from external factors.