Getting Serious about Taxes

Goods and services tax (GST) became the order of the day on July 1, 2017. Much has been written about the advantages and the disadvantages of the tax. Hence, I will concentrate on another point, which I find hasn't been discussed enough in the media. The rates of taxes that have been decided under the GST are 0 per cent, 0.25 per cent (for rough diamonds), 3 per cent (for gold), 5 per cent, 12 per cent, 18 per cent, 28 per cent and 28 per cent with surcharge. These are multiple rates of taxes, which in their own way, beat the entire purpose of having a value added tax (VAT) or as the Modi government likes to put it, one nation, one tax. Also, a bulk of the goods and services will be taxed at 18 per cent, 28 per cent and 28 per cent with surcharge. As far as peak rates go, India's peak GST rates are one of the highest in the world, among countries which follow a GST/VAT form of indirect taxation. (See Figure 1). The question is why this is the case. The rates of taxes under GST on various goods and services were decided by the GST council. Their mandate was to fit the GST rate on goods and services close to the existing taxes. And that's precisely what they did. Given that the existing taxes on many goods were high in the first place, the GST rates also turned out to be high. The question to ask is why the existing taxes were high in t

This article was originally published on September 22, 2017.