Even as the nation prepares for the biggest indirect tax reform in the country with the implementation of the goods and services tax (GST), politics has trumped simplicity. As a result, the nation needs to contend with five tax rates for goods and services — from nil to 28 per cent — as well as distortions in the tax structure created to appease different interest groups, including industry.
The implementing of GST was a golden opportunity, though a tough act, to clean up distortions in the tax structure. An ideal GST structure should have had two-rate structure — a standard rate for most items and a concessional rate for select items of mass consumption. Only a handful of items should have remained exempt. Had the Centre chosen to go down that path, as many tax experts and economists advised, there was a real risk of GST not being implemented in the current fiscal. Many more meetings could have ended fruitlessly as States bargained to keep items in the concessional rate basket.
Therefore, the Centre agreed to more or a less a status quo taxation structure — where revenues of the Centre and States are protected and impact on inflation is minimal. This was achieved by taking the weighted average rate of Central and State taxes on various goods and fitting them into one of the five rates.
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