Single rate, fewer exemptions in GST key to boosting India’s tax-to-GDP ratio

gstIndia might be peering toward further changes to lift the duty to-GDP proportion in the wake of setting up the merchandise and ventures impose (GST). It is one of the nation’s greatest arrangement changes ever.

The duty GDP proportion is relied upon to cross 12% in FY19, another high in over 10 years. However lower than developing business sector peers. This implies growing a duty base that has been disintegrated by expansive exceptions and carveouts. A more straightforward, non-antagonistic duty routine can help in such a manner.

“From all accounts, there is likely to be increasing pressure on government expenditure from 2019 onwards as competitive politics will compel enhanced spending on various social and agrarian sector areas,” said Sudhir Kapadia, national tax leader, EY India. “This would mean renewed efforts of broadening the tax base and enhancing revenues.”

GST created a seamless national market and ensured that consumers pay the same tax for goods and services. The GST Council has been making changes since the July 2017 rollout but deeper surgery may be needed.

An ideal GST means a single rate with negligible exemptions. In India, things are different because of political circumstance. Petroleum products, real estate, and liquor remain out of its purview and there are a plethora of rates. Kerala has been allowed to impose a 1% cess following the 2018 floods. The turnover threshold for goods was raised recently to Rs 40 lakh, but for services, it remains at Rs 20 lakh.


A GST 2.0 would mean moving closer to a single rate structure with fewer exemptions, bringing all sectors within its ambit and a simpler law. Any government will find it politically difficult to tax a Mercedes and salt at the same rate. It may also need to exempt a few items such as the latter altogether. But steps to reduce such divergence would be welcome.

“This will require broadening of the tax base by getting petroleum and real estate in its fold, further simplification of tax rates, many legislative interventions and avoiding quick-fix solutions such as selectively restricting the input credit for a particular sector or accommodating state-specific changes, which dilutes the concept of ‘one nation one tax’,” said Pratik Jain, national indirect taxes leader, PwC

“Inclusion of petroleum products and the entire real estate value chain in GST should figure prominently in the agenda of the new government,” said MS Mani, partner, Deloitte, Haskins & Sells. Use of the database to generate leads on tax evaders and rewarding honest taxpayers using the GST Compliance Rating tool will also generate more confidence among businesses, Mani said

A robust dispute-resolution mechanism and administration will help.

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