GST Council delays reforms and rate rationalization

Source: The post GST Council delays reforms and rate rationalization has been created, based on the article “Express view on PM’s Kuwait visit: Delhi must deliver on West Asia promise” published in “Indian Express” on 24th December 2024

UPSC Syllabus Topic: GS Paper3-Indian Economy- resource mobilization (taxation)

Context: The article discusses GST Council’s delay in decisions on tax reductions for insurance and food delivery, extensions for rate rationalization and compensation cess, odd GST rate structures on goods like popcorn, and India’s complex multiple-rate GST system needing reform.

For detailed information on 7 Years of GST read this article here

What decisions were deferred by the GST Council?

1. The GST Council, in its 55th meeting, postponed decisions on critical matters:

• Lowering GST rates for health and life insurance.
• Reducing taxes on food delivery charges by aggregators.

2. The Group of Ministers (GoM) on rate rationalization and compensation cess was also given more time to submit reports.

What are the challenges of India’s GST rate structure?

1. Multiple tax slabs: India has four or more GST slabs, unlike 49 countries with a single rate and 28 with two rates (World Bank 2018).
2. Complex classifications: For example, popcorn is taxed differently: salted (5%), pre-packaged (12%), and sugar-mixed (18%).
3. Confusing item distinctions: Cream buns and regular buns are taxed at different rates, as are frozen parathas and rotis.
4. Increased compliance burden: Businesses face difficulties adhering to varied rates.
5. Discretionary power: Bureaucrats have excessive authority due to the system’s complexity.
6. Ease of doing business: The system hampers India’s business environment.

What was discussed regarding GST rationalization?

1. In its 45th meeting, the council discussed the need to rationalize GST rates, potentially by reducing the number of tax slabs and addressing the classification of items.
2. The council also extended the levy of the compensation cess until March 2026 to repay loans taken during the pandemic.

Question for practice:

Discuss the challenges of India’s GST rate structure and the GST Council’s efforts toward rationalization.