As a common man in India, talks of GST attract mixed reactions. For many, the GST has caused an inflammatory effect on the commodities while others put it in an intellectual way that it has simplified the indirect taxes regime. In between this, is the slugfest which takes a political turn and becomes BJP vs Opposition and the whole reality blurs.
At the outset, it is the feature of GST that every decision is taken by the Council that has equal representation of states. Keeping this in mind, the claims of tax rise after 2017 are worth enquiring about. The opposition tries to paint the GST as ‘Gabbar Singh Tax’. These types of jibes get easy public acceptability, despite being far from reality, because taxes are what people pay without getting a return directly or instantly.
It paints a perception that the government is appropriating the money while doing little for the people. In reality GST has been a fruitful decision. Recently, in the Budget Session of the Parliament, Union Finance Minister Nirmala Sitharaman was replying to the question of members in Rajya Sabha.
She informed the Upper House that since the implementation of Goods and Services Tax (GST), average tax has reduced drastically. Before the implementation of GST, it was 15.8 while under the GST regime, it is 11.3 percent.
This is a VERY important data point that every Indian should know … but BJP has failed to publicize it
Average rate of tax:
Before GST: 15.8%
After GST: 11.3%
Idea that GST increased taxes is total nonsense
Good that Nirmala Sitharaman said it loudly pic.twitter.com/QQVxwoodI5
— Abhishek (@AbhishBanerj) February 12, 2025
But then the question arises: what is wrong? The answer to this question is simple— nothing. With due consideration, it was claimed in the past that the government has taxed milk, and dairy products, grains, etc under GST, a premise used for tarnishing the biggest tax reform in the country. However, the reality is that only the pre-packed dairy items and grains are taxed.
Basically, if an entity is packing these products, it is branding and hence becomes taxable. Moreover, it is a surprising fact that prior to GST, many states levied taxes on grains, packed or without packed. For example, in Uttar Pradesh, rice had 4 per cent tax. Himachal Pradesh and Haryana also charged 4 per cent on this staple before GST.
Similarly, in Andhra Pradesh and Telangana had levied 5 percent VAT on rice while in Punjab it was 5.5 percent.
Wheat and other food grains also attracted taxes. In comparison to this, the GST doesn’t levy any tax on unpacked grain.
Against this backdrop, this indirect tax regime has remarkably benefited both the traders and consumers of these essential commodities.
States earned 24% more under GST system: Finance Minister
It is pertinent to note that with the passage of time the GST regime is witnessing record high monthly collections, highlighting the effectiveness of this indirect tax that despite the average tax rates going down, the collection is touching record highs. The benefactors of this progressive development also include the states.
Incidentally, in her Parliamentary speech, FM Nirmala Sitharaman had dismissed concerns that record-high GST collections were only benefiting the Centre. Through data, she explained that the states earned approximately 24% more taxes under the GST regime as against the taxes they would have collected in the pre-GST era.
She noted that this indirect tax regime boosted states’ revenues by over Rs 9 trillion between 2018-19 and 2022-23 compared to the amounts that would have been collected through the earlier subsumed taxes.
The Finance Minister highlighted that the states get 100% contribution of the state GST (SGST) collected within the state boundary. Plus, they get around 50% of the integrated GST (IGST), as well as 42% of central GST (CGST) under the Finance Commission’s recommendations for devolution of taxes.
She said, “Despite the end of compensation, state revenues remain buoyant at 1.15. Without GST, states’ revenues from subsumed taxes from 2018-19 to 2023-24 would have been Rs 37.5 trillion. With GST, states’ actual revenue amounted to Rs 46.56 trillion.”
She also highlighted that the Goods and Services Tax has improved tax buoyancy from 0.72% in the pre-GST period to 1.22% during 2018-23.
There is also an argument that many products have higher GST rates than the VAT. But there are two aspects to this half baked and misinformed argument.
Firstly, a product under earlier tax regime didn’t attract only VAT but excise tax for manufactured goods and cess among others. In GST all are clubbed and hence reduced.
Secondly, in the earlier VAT regime, the cascading effect had laid extra load on consumers’ pockets. Let’s understand this with an example.
For instance, a manufacturer procured raw materials and other products at 5 per cent VAT at Rs 3,000, amounting to Rs 150. Later he sold the finished goods with 10 per cent VAT at Rs 5,000 for Rs 5,500.
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Now, the final tax would be Rs 650 because Rs 150 VAT paid earlier would not be deducted. So despite being taxed at 10 per cent, the tax payout exceeded due to cascading effect. On the contrary, under GST, Rs 150 would be deducted at the time of final payout so that the tax stands at only 10 per cent.
This is the real and most practical benefit of the new indirect tax system which is not felt directly sometimes in terms of prices because of inflation. If the VAT would have been in place, the tax today would have been even more.
Moreover, the diversified product ranges is another big issue that has been tackled by the GST. A few weeks earlier, the GST Council decided to levy 5 per cent GST on flavoured popcorn which led to massive social media outrage. It was presented as some kind of immoral decision when the reality was that popcorn remains tax free until it is prepared with sugar which carries 5 per cent tax.
The diversification of products and their range would continue to foster such decisions but at the core, the essence of the GST is still that no essential edible commodity attracts tax till it justifies the concept of basic necessities. Beyond it, the tax is imposed when it comes to the concept of choice. Arguably, sugar coated popcorn at a movie hall costing Rs 300 is not a basic necessity and hence can’t morally require govt to lose its share of tax at the counter when it has already charged at the processing level.
The GST, hence, is a simplified tax for an unsimplified market and consumer base which has to serve on the concept of welfare state. Strictly speaking, it is a tight rope walking for the government but so far the government has been unexpectedly successful in its pursuit. The tax collection and base of taxable entities have touched new heights under the GST while the tax amount has significantly reduced.
