The Modi government has repeatedly said that the current format of GST is not a final one. It will evolve with requirements and feedback. The GST council, the governing body of GST, has 33 members and they discuss, debate and take decisions based on the feedback. The council, chaired by the finance minister, also dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states. Bihar Deputy CM and GST council member Sushil Modi said, “The GST council might replace the 12 percent and 18 percent slabs with a 14-15 percent one.”
Modi said that this slab rationalization was likely to be taken up only after the GST collections have reached Rs 1 lakh crore while addressing a seminar on the GST, organized by the Institute of Chartered Accountants of India. The GST council has set a target to collect indirect taxes worth 1 lakh crore rupees. But the target was met only in April. In July, Rs 96, 483 crore was collected, against Rs 95,610 crore in June. Now with the recent rationalization of taxes when the council decided to reduce the rate of taxation on the list of 100 items of mass-consumption, the target does not seem achievable in near term. The consumer goods like Refrigerators, freezers and other refrigerating or freezing equipment including a water cooler, washing machines, television, and electric soothing irons were moved from 28 percent tax slab to 18 percent tax slab. The tax rate on paint and varnishes, putty, resin cement was also rationalized at 18 percent tax rate. These items contribute a major chunk of indirect taxes so the one lakh crore targets could be achieved only after 9-12 months.
India uses the multiple rate slabs to accommodate the huge socio-economic diversity of the country. At present, around 49 countries use a single GST rate, 28 use two rates and four countries including India have more rates. “Pruning the number of GST rate slabs is definitely a good idea. But I don’t foresee that happening in the next nine to 12 months till the tax collections consistently reach the desired Rs 1-trillion-per-month target,” said Harpreet Singh, partner at KPMG. In a country with the scale of the diversity of India, the single rate indirect tax is bound to fail as we have seen earlier in Malaysia. So the rationalization of taxes in necessary but a single tax rate is not required because Hawai chappal and BMW car cannot be taxed at same rate.
Arun Jaitley, the senior BJP leader and former Finance Minister recently said, “We will be busy in the process of shifting a large number of items from (the top rate of) 28% to the lower rate, The weighted average of the total taxation basket has significantly come down and therefore we are in the process of rationalizing the rates itself.”
The GST has proved a major reform because it does not only transformed the indirect tax system but also helped in increasing the direct tax net because those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax. The number of direct taxpayers increased from 6 million to 10.6 million in the fiscal year 2017-18. India’s tax-to-GDP ratio is budgeted to increase to 12.1% in the fiscal year 2018-19 as against 11.6% in 2017-18, 11.3% in 2016-17. GST is an indirect tax which operates on the model of ‘One Nation, One tax’, and has brought homogeneity in the market across the country. Therefore, an indirect tax being helpful in improving the direct tax base is a ‘positive spillover effect’ of this law.