A single rate GST may not suit India at this juncture

Around the world, at least 160 countries have implemented Goods and Services Tax (GST) and/or Value Added Tax (VAT) in some form or the other. But India stands out in many ways than one. It has a dual GST system whereby it is levied both by the Centre and the states. Only two other countries have dual GST — Brazil and Canada.

India has five different tax slabs and in certain cesses, over and above this. And, it is the only country with such a vast size, population and complexity to attempt a tax reform of this scale. India is home to 18% of the world's population. China, the largest populated, has a partial GST, only on some goods.

By that standard, the country deserves a pat on its back for implementing a system which completely overhauls the way the indirect tax mechanism was dealt with, having a plethora of taxes, duties, surcharges and cesses. But no sooner the GST was implemented, than the voices of dissent started pouring in from various corners. Political parties of different hues, businesses, think tanks, some of the towering BJP leaders and allies vociferously criticised the multiple tax rate structure saying it was against the spirit of the original GST.

BJP veteran leader Yashwant Sinha, whose involvement with the GST goes back to the time when it was first conceptualised during the prime ministership of A B Vajpayee in 2000, said the multiple rate GST can never add to India's growth rate.

He is of the view that only a single rate GST can give a 2% push to country's gross domestic product (GST). The former minister went on to say that the GST which was implemented from July 1, was a result of compromise and that compromise is not the best solution.

West Bengal Chief Minister Mamata Banerjee was critical of the prevailing tax layers under GST and so was the Left. They also boycotted the midnight launch of GST from the Central Hall of Parliament on June 30.

The main Opposition Congress, which failed to hammer out a consensus on GST for about a decade, arrived at the conclusion that the GST not only has a five-rate structure of 0%, 5%, 12%, 18% and 28% but also accommodated seven other types of rates. And, somewhere there were (.)25% and 3% levies also in the line. They demanded a standard rate of GST for its success.

Among the businesses, the most vocal was Biocon chief Kiran Mazumdar Shaw who even advised the government not to fritter away the benefits of a unified indirect tax regime by multiple tax rates. To each one of them, Finance Minister Arun Jaitley had just one reply: “air conditioner and hawai chappal (bathroom slipper) cannot be taxed at one rate.”

Well, they are, in some of countries which have opted for GST. In Singapore, for example, only one GST rate of 7% is applicable whether it is for a pair of shoes or for a bar of gold. New Zealand, which was the first country on the globe to adopt GST in 1986, has a standard rate of 15% that is levied on salt as well as on luxury vehicles. Indonesia too has a uniform rate but many goods and services are exempt. In Australia, the peak GST rate is 10%.

But none of these countries can be compared with India in terms of population, vastness and economic status of their people. India has the highest number of people living below poverty line in the world.

In terms of economic development, it is nowhere near the countries which have implemented GST. Therefore, it can ill afford a similar GST rate for a bar of soap and a bar of gold. If it attempts, a majority of poor people will get marginalised.

India's GST has a unique provision of zero-rated goods. Most of the food products and items of use by the common man have been fitted in the 0% or nil rate structure. Thereafter, a modest number of consumer items have been fitted under 5%. Around 81% of 1,211 items have been kept in the tax bracket of 18% or lower.

Growth rate
However, these rate structures are not cast in stone. Some of them may converge if and when the country moves towards a higher growth rate and the economy is able to take more people out of morass of poverty. At least, the government has promised as much. Analysts, however, say that the present GST can be too regressive for lower income groups and pensioners because the rates are still on a higher side.

They suggest that the government maintain transparency throughout in the new tax regime so as to save people from facing any shock. One such shock came from the decision to tax packaged food at 5%. When the fitment of rates was decided by the GST Council in November 2016, the impression was that all food items would be zero-rated. The 5% tax was only an afterthought according to many.

In the present times, many go for packaged grocery. There are, however, concerns of hygiene and safety. But the decision to tax packaged commodity at 5% can force many in the low-income group to switch to unpacked groceries. The Confederation of All India Traders (CAIT), the premier traders’ body in the country, has also raised this concern and said that it would give rise to adulteration.

The case of sanitary napkins has become particularly contentious with a viral campaign on social media. It has been taxed at 12%. But the government is convinced that it is at par with its earlier tax burden. Similarly, the rationale of taxing subsidised cooking gas (LPG) cylinders at 5% is also being questioned at a time when crude oil, natural gas, petrol, diesel and aviation fuel are outside the new tax regime.

The government has said it will keep correcting the anomalies in the due course. It did correct one only hours before the launch of GST when it reduced the rate for fertilisers from 12% to 5% sensing farmers’ woes.