With the Lok Sabha passing four bills related to goods and services tax (GST) on 29 March, the stage is set for the rollout of GST.
While we may argue the design and structure is not flawless, in my personal view, in a complex democracy like India with its federal structure and states’ divergent needs, this is a pragmatic beginning. This will evolve into something ideal for India over the next few years.
GST will create a semblance of a common market where all goods and services irrespective of where it’s transacted will have a common treatment and a common rate.
Tax on tax, or cascading, was inherent in our existing tax regime where both central and state levies were applied on truncated value chain with no offset of credits inter-se these two government levies.
The four slab rates of 5%, 12%, 18% and 28% with identified de-merit goods subject to levy of cess over and above peak rate of 28% was a dampener for the industry. The multiple rate structure is derived from the fact that current effective indirect taxes (both centre and state) over certain bands are maintained for revenue neutrality and linked to above rate slabs.