The Goods and Services Tax (GST) Council recently decided to consider multi-utility vehicles (MUVs) with a minimum length of four metres, an engine size of at least 1,500 cc or a ground clearance of more than 170 mm, as sport-utility vehicles. Has decided. SUV). Earlier 20% GST was levied on these vehicles but now 22% GST will be levied. MUVs that do not meet the prescribed norms will continue to attract 20% GST.
One of the latest decisions of the Council is that popcorn sold in cinema halls will attract different GST rates, depending on whether it is purchased separately or along with a movie ticket. This is not an isolated case. Kulfi is charged 18% GST, but Sandesh is charged 5% GST, although both are varieties of Indian sweets. This defies the argument that Kulfi is seen as a luxury while Sandesh is not.
The true extent of the mess is perhaps best demonstrated by the Council’s decision this week to tax online gaming on the same lines as horse racing and other forms of gambling, by imposing a 28% GST on the entire turnover of gaming firms. In doing so, the Council has confused games of skill with games of chance, and in the process disrupted an up-and-coming industry with significant potential for job creation.
It is safe to say that the GST Council will help improve the ease of doing business and rapidly create jobs for the millions of young Indians entering the labor force, in India’s quest to restart the private-investment cycle. One of the biggest disappointments is becoming.
The objective of moving to the GST regime was to have a simple, predictable tax regime. What has been the record of GST? According to an estimate, by 6 November 2022, the Central Board of Indirect Taxes and Customs (CBIC) had published over 900 notifications and over 1,100 circulars and orders since the implementation of GST in 2017. This means that more amendments have been made in the GST law. Over 900 times in five years.
Even taking into account the fact that not every notification or amendment materially affects every business, isn’t it a challenge to keep track of these many notifications and amendments, especially for small firms?
Although states repeat the central government’s GST notifications word-for-word, which means taxpayers don’t have to track them separately, their inclusion takes the total number of notifications and circulars issued over five years to over 30,000 . The GST rate notification (1/2017-CTR, dated 28-06-2017) has been amended more than 20 times since 2017.
Why has GST become a subject of endless tinkering? The answer lies in the promotion of the members of the GST Council, which is headed by the Union Finance Minister and includes state finance ministers as members.
Before GST was implemented, the state finance ministers used to oversee indirect taxes. If GST becomes smooth and predictable, they will lose this important part of their work allocation. A simple and stable GST would mean less impact for these politicians as they would not need to make so many decisions. This will reduce or eliminate the need for corporate lobbies to push for change and anomalies. Tax bureaucrats and administrators would also lose their power over taxpayers. Bureaucracy and tax lawyers benefit when tax systems are complex. Their incentives are not in line with the incentives of the investors.
Therefore, economists who understand this political economy of tax systems have argued that the best GST for India would be a single-rate, non-rebate tax, rejecting the political argument that on some goods, such as luxury products, More taxes should be imposed. Rates.
However, the Council is always ready to make changes to the GST system with the help of the tax bureaucracy. For five years, it has been saying that it is rationalizing the GST slab structure, but it seems to be in no hurry to get the job done.
Ideally, the changes in GST should have reduced the role of lobbies and decision makers. The GST Council has not reduced its interventions because no one likes to give up economic control, but reforms are not possible without it.