Rationalisation of tax rates proves beneficial over time and this phenomenon has been happening all over the world.
New GST rates are important economic reforms Editorial: The GST Council's decision to reduce the rates of Goods and Services Tax (GST) is a major and commendable economic reform. The council's meeting on this reform lasted for 10 hours on Wednesday, during which many objections were removed, ways and means of compensating the states for the potential financial loss due to the rate reduction were discussed, allegations of discrimination against states with non-BJP governments were remedied and finally a decision was taken to implement the new rates by consensus.
This decision will be implemented from the first Navratri i.e. September 22, which means that during the festive season that will last for the next three months, the common consumer will be able to buy many goods at cheaper rates than now. From that date, GST on 742 items. Will be reduced by 7 to 13 percent. GST Earlier, there were four slabs of GST at 5, 12, 18 and 28 percent. Now there will be mainly two slabs at 5 and 18 percent. Only 42 items falling under the purview of luxury goods will attract a tax rate of more than 40 percent. The official terminology for such items is ‘sin goods’, while their consumers consider it more appropriate to call them ‘super luxury goods’.
The purpose of imposing such a high tax rate on them is to discourage their consumption. After the meeting, Union Finance Minister Nirmala Sitharaman said that rationalization of GST rates had long been the need of the hour. The central government wanted to provide financial relief to the common man and increase his purchasing power despite the risks associated with loss to the government exchequer. That is why more than 58 percent of goods and services will be taxed at 5 percent GST. has been brought under the ambit of. He termed this decision as a ‘revolutionary step’.
The major items which have been removed from the 18 per cent slab and brought under the 5 per cent slab include health and life insurance, hair oil, shampoo, soap, toothpaste, toothbrush, ice creams and kitchen items. Similarly, the items which have been included in the 12 to 5 per cent rate structure include ghee, butter, cheese and other milk products, sweets, spectacles, tractors and farm machinery, drip irrigation equipment, sanitary materials, spectacles etc.
The 12 per cent tax on items used by school children such as stationery, notebooks, maps, charts and globes and geometry boxes has been completely abolished. Petrol, CNG, LPG-powered motor vehicles with engine capacity of less than 1200 cc, motorcycles and scooters, electrical equipment and air conditioners and TV sets have also been reduced from 28% to 18%. It is natural that such reductions are welcomed by the general consumer.
However, after such reductions, the fears of a direct hit to the financial system of the state governments, in addition to the central treasury, are not unreasonable. The central government is of the opinion that tax cuts will encourage more purchases of various goods and will help in reducing the trend of tax evasion. Despite such a positive thinking, the formula to compensate the possible loss to the states should also be implemented practically from September 22. The governments of Tamil Nadu or West Bengal are stating that the loss due to the new tax rates is lakhs and lakhs of crores of rupees. Such unrealistic claims should be avoided.
Rationalisation of tax rates proves beneficial over time and this phenomenon has been happening all over the world. Therefore, creating political controversy over the existing decision after agreeing to it is a sign of political duplicity. Mrs. Sitharaman refused to give any estimate of the potential loss due to the two slabs on the grounds that “the trends of the first one-two months will make it clear how much the estimated loss will be. In such a situation, it is better to avoid ‘unnecessary bravado’.” This is sound advice that all parties should follow.
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