Modi government’s GST 2.0 reforms would make taxation more compliant, leave more money with people, take Bharat into a different league.
K.A.Badarinath
Goods and Services Tax was once sold as ‘one nation one tax’ by Narendra Modi led NDA government when it was first introduced on July 1, 2017 in Bharat.
After 13-years of painful and protracted negotiation with states led by different political formations, multiple taxes at different levels were subsumed into this federal tax aimed at easing burden on businesses, taxpayers and reduce evasion.
This single biggest tax reform brought in by Modi government was however seen with apprehension by a few stakeholders and several opposition parties that headed state governments.
Today, most Indians are convinced that the reform path laid down by Narendra Modi government was firm, forward looking and easy to comply with.
As on date, about 160 countries implement the GST or Value Added Tax (VAT) in some form or the other beginning with France in 1954. Though, India has been a late entrant into this taxation regime, it matured fast, compliance improved and held the tax mobilization campaign in last eight years on an even keel without disturbing the delicate applecart with 29 states and eight union territories.
Revenue neutral rates for GST report put together by then Chief Economic Advisor, Arvind Subramanian, in December 2015 ahead the rollout studied Canada, European Union, China, Australia and Indonesia to make his recommendations. Subramanian had pointed to challenges in implementing a ‘dual rate structure’ in a federal system like ours.
Similarly, Reserve Bank of India (RBI) report of 2017 had emphasised on big implementation risks faced by sovereign governments globally while implementing the GST. From evasion, under-reporting, cash deals, unregistered businesses, splitting invoices to making false claims, RBI flagged several issues in the implementation.
World Bank that tracked initial years of GST implementation in India had underscored huge risks given the complexity of Bharat’s markets driven by states and local governments.
But, the political leadership under Prime Minister Modi took a conscious call to implement GST, ease out the taxation burden on the system and get into the global league of ‘best compliant nations’.
There were several naysayers across the spectrum. Prime Minister Modi and his economic ‘A’ team did not relent. It went ahead with roll out and implementing the dual GST with multiple rates akin to Canada which is the nearest in comparison.
And, it’s for everyone to experience the impact and resultant taxation regime that delivered in eight years. Value Added Tax, State and Central Sales Tax apart from a multitude of imposts were replaced by the unified GST.
This successful model served as a big trigger for Modi government to take up the next big reform measure and ring in the GST 2.0 regime beginning September 22 this year.
On Wednesday, GST Council headed by Finance Minister, Nirmala Sitharaman, went into ten hour marathon huddle to thrash out two rate structure replacing the multiple slabs, provide massive relief to the hoi polloi.
More than reworking the GST slabs to two at five per cent and 18 per cent, the biggest move was to do away with the12 per cent and 28 per cent slabs that were huge on revenue earnings for the government.
One estimate suggests that by moving 99 per cent goods and services from 12 per cent to five per cent bracket or completely exempting daily use items from tax impost, Modi – Sitharaman played big by foregoing Rs 48,000 crore revenues in next two quarters of this fiscal.
If one were to factor in the huge tax concessions of Rs 100,000 crore announced in Union Budget on February 1, 2025 and GST rate cuts as well as exemptions, middle-class and salaried classes gain substantially.
Exempting both life and non-life insurance products from levy of GST is yet another big reform measure given the social security gaps prevalent across sections.
Big gainers in this GST reform are farmers, women, youth and vulnerable sections that feel the pinch of high taxation. Most daily use items have been taken away from GST ambit with nil taxes. From bread, channa to paneer, all these come without taxes.
Latest round of GST reforms have a serious socio, economic and political messaging as well. Leaving more money with the people that would widen and deepen the consumption basket would also push up economic growth from expected 6.5 per cent this fiscal.
If one were to take exempted items, ‘sin’ and ultra-luxury goods rate of 40 per cent that include tobacco products, the two trick-ponies would partly offset the impact of US tariffs at 50 per cent and trigger economic growth.
These tax reforms have not come in without adequate confabulation and computation by the economic managers. This was coming! Prime Minister Modi himself had hinted at GST reforms from ramparts of Red Fort in his Independence Day speech last month.
It’s not fait accompli or desperation. It’s a well thought out reform measure that would lay an important brick in the foundation for developed Bharat.
It’s early Deepawali for all! Companies, service providers – both domestic and foreign – are bound to rejoice and make merry like the consumers. Great festivities ahead!
(Author is Director and Chief Executive of New Delhi based non-partisan think tank, Centre for Integrated and Holistic Studies)
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