Reforming the GST regime

Hindustan Times

2 hours ago

The Goods and Services Tax (GST), when it was finally implemented after decades of labour, was India's largest ever indirect tax reform. It created a nationally unified market and a unique federal forum for governing it. Doing away with state-level bumps in the indirect tax regime, however, was only one of the GST's promises. It was also expected to make the tax regime simple, especially in terms of slabs. Prime Minister Narendra Modi's Independence Day speech has raised hopes of this promise being fulfilled eight years after GST's roll out.
Speaking from the ramparts of Red Fort — the directional changes were later shared by finance ministry officials — Modi said that the Union government has sent a proposal to the Group of Ministers (GoM) constituted by the GST Council to unleash second generation reforms in GST, which, among other things, will bring most items under just two slabs of 'standard' and 'merit' with some exceptions being put under 'special rates'.
HT reported earlier that the Centre has been mulling this, but also pointed out how the GST Council has not met for a long time now. While Modi announced that the reforms, especially on the slab front, would likely be rolled out before Diwali (second half of October), a GST Council meeting is yet to be notified.
The idea, at least in principle, ought to be welcomed unequivocally. It will simplify the tax regime and take politicking out of setting tax slabs. However, the devil may very well lie in the details. Any large-scale revision in GST slabs will have to take into account its revenue implications as well as a possible inflationary impact. These two are likely to work in opposite directions and are critical factors for the fiscal and political health of the governments in charge, both in the Centre and the states. One would like to believe that a large part of this homework has been done by the GoM and state governments are on the same page with some of these salient findings. We will know more when these proposals are discussed in the next GST Council.
A simplified GST is a much-needed step in India's long, even if gradual, road to reforms. Ideally, this reform should have happened earlier and definitely not in the current environment of global economic turmoil. But that's what political friction to reform sometimes entails.