For the time being, no rationalisation of the GST structure: Revenue Commissioner

The long-awaited rationalisation of the Goods and Services Tax (GST) regime’s multiple rate structure is currently off the table and unlikely to materialise in the near future.

What exactly is GST?

  • GST, which went into effect in India on July 1, 2017, is a comprehensive indirect tax that applies to the entire country.
  • It is charged at the time of supply and is determined by the point of consumption.
  • For example, if a product is manufactured in state A but consumed in state B, the revenue generated by GST collection is credited to the state of consumption (state B) rather than the state of production (state A) (state A).
  • Because GST is a consumption-based tax, manufacturing-heavy states have lost revenue.

What exactly are GST Slabs?

  • In India, the four major GST slabs cover nearly 500 services and over 1300 products.
  • There are five broad tax rates: zero, 5%, 12%, 18%, and 28%, plus a cess on some’sin’ goods in addition to the 28%.
  • The GST Council revises the items under each slab rate on a regular basis to reflect industry demands and market trends.
  • The revised structure ensures that essential items are taxed at lower rates, while luxury goods and services are taxed at higher rates.
  • Tobacco products, automobiles, and aerated beverages are subject to the 28% rate, as well as an additional GST compensation cess.

Problems with the GST structure

  • The GST structure is quite complex and difficult to understand, which has caused confusion among businesses and consumers alike. As a result, the cost of compliance and administration for businesses has risen.
  • Rate Heterogeneity: The heterogeneity of rates across different goods and services is one of the main issues with the GST structure. This has increased the cost of compliance for businesses because they must know the applicable GST rate for each product and service.
  • The dual GST system in India has caused confusion and complexity for businesses that must deal with both the central GST (CGST) and the state GST (SGST). This has also increased the cost of compliance for businesses.
  • Cascading Taxation: The GST structure has resulted in the problem of cascading taxation, in which taxes are levied at every stage of the supply chain, causing the cost of goods and services to rise.
  • Lack of Transparency: Because the applicable taxes are not clearly indicated on the invoice, the GST structure has resulted in a lack of transparency in the pricing of goods and services.
  • Poor collection infrastructure: In order to function properly, the GST system requires a strong infrastructure, which is not always present in India. This can cause filing delays and other problems.

Why should GST slabs be rationalised?

  • Complex organisational structure: From the perspective of businesses, there are simply too many tax rate slabs, exacerbated by anomalies in the duty structure throughout their supply chains, with some inputs taxed more than the final product.
  • Multiple rate changes: Since the implementation of the GST regime in July 2017, the effective GST rate has been reduced from the original revenue-neutral rate of 15.5% to 11.6%.
  • Revenue losses specified: The combination of the 12% and 18% GST rates into a tax rate less than 18% may result in revenue loss.

The Advantages of GST Rationalization

  • Compliance is easier: GST slab rationalisation simplifies the tax structure and makes it easier for businesses to comply with the law.
  • Taxation equity: It also contributes to ensuring that the tax burden is distributed fairly and that the revenue generated is used efficiently.
  • Tax collection efficiency: Finally, rationalising GST slabs leads to more efficient tax collection, which helps businesses reduce compliance costs.

@the end

  • Rate rationalisation is most likely the most significant’reform’ required to make the GST regime more efficient.
  • When the exercise is finished, it is expected that the GST will be a less complex system that will not only make compliance easier but will also increase revenue collection.
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