Topic- Indian economy : mobilization of revenue
6) Evaluate whether having multiple GST rates make the GST structure cumbersome and discuss how can we make GST more simple?(250 words)
Why this question
Off late, GST and the issues faced in its implementation along with the idea of simplification of GST has been in the news. The article critically analyzes the issue and hence needs to be prepared.
Key demand of the question
The question expects us to explain the rate structure in GST and thereafter analyze the pros and cons of having multiple rates in light of revenue protection, federal structure etc and gives a fair and balanced opinion on whether the multiple rate structure in GST makes the tax regime quite cumbersome. Thereafter, we need to give suggestions for making the tax regime simpler.
Evaluate – When you are asked to evaluate, you have to pass a sound judgement about the truth of the given statement in the question or the topic based on evidences. You have to appraise the worth of the statement in question. There is scope for forming a personal opinion here.
Structure of the answer
Introduction – Explain about the recent statements given by the FM that we are eventually planning to move towards a single rate structure under GST.
- Explain the current rate structure under GST
- Evaluate its pros and cons
- The complicated GST structure we began with can partly be explained by the messy federal bargaining in the GST Council and partly by a flawed incentive structure.
- Centre guaranteed the states that their revenues from GST would grow at 14% a year. Any shortfall would be compensated.
- GST collections have not met with the monthly revenue and growth targets which validates the need for keeping certain goods in higher tax bracket
- World Bank study published in May 2018 said that the Indian GST rate was the second highest among the 115 countries with a national value-added tax. It was also the most complicated, with five main tax rates, several exemptions, a cess and a special rate for gold. The multilateral lender said that only five countries had four or more non-zero tax rates—India, Italy, Pakistan, Luxembourg and Ghana.
- Highlight that committees formed for this purpose such as the Modi committee had recommended a 12% GST rate, of which 5% would go to the Union government, 5% to the state governments and the other 2% to the third tier of government.
- Suggest measures which would make the GST regime simpler such as single rate , simplification of returns process etc
Conclusion – Give your view whether the multiple rate structure under GST makes the tax regime cumbersome.