11 days ago
- copy link
Chetan Bhagat, English novelist
One of the toughest reforms of the last decade was the national GST, which was implemented in 2017. It replaced various central and state indirect taxes. Apart from both houses of the Parliament, the Legislative Assembly of every state also had to pass the GST Bill. Due to this the entire tax system of millions of businesses had to be changed.
Had to create an online system. The division of revenue had to be decided between the Center and the states. Had to endure criticism from the opposition. It was also necessary to win the trust of the public. It was a slow and difficult reform for a country like India.
Perhaps this is the reason why it is considered one of the major achievements of the BJP led government. The basic objective of GST was to make the tax system uniform, simplified and free from unnecessary hassles.
And yet last week the Internet was abuzz with memes about GST on caramelized-popcorn. It was learned that plain or salted popcorn attracts 5% GST, but caramelized popcorn attracts 18% tax.
Reason? Because 18% GST is charged on sugary snacks, whereas only 5% is charged on salty snacks. Since caramelized-popcorn is sweeter, you have to pay more tax. The Finance Minister of the country herself had to clarify this in a press conference.
A few months ago, the owner of a restaurant chain in South India talked about how buns are less taxed, cream is less taxed, but if cream is put on a bun, both are taxed more.
The result was that his customers started asking for cream and bun separately. This was said jokingly, but it also reflects a truth. That GST, which was meant to simplify things, is becoming more complex with time.
The root cause of this problem is the mentality of the policy makers. They cannot give up their desire to control everything, impose their own morality even in taxes, create ‘clever’ policies to squeeze out every drop of additional tax-revenue and lose sight of this broader objective behind GST. Don’t get that he was brought in to simplify things. A complex GST with multiple tax slabs, cesses and unchecked powers in the hands of policymakers is tantamount to no GST reform.
At the time of introduction of GST, it had four slabs: 5%, 12%, 18% and 28%. Some items were exempted from GST, thereby adding a 0% slab on them. Some items like fuel were kept out of GST, which had higher tax rates. This created an additional slab.
Thus, we started with six different GST rates. Over time, multiple cesses have been added on certain products (like luxury cars), meaning these six slabs can be further manipulated by policymakers to set the GST rate as per their wish.
The idea behind starting with multiple slabs was to improve the complex system. But as we approach 2025, we should further simplify GST. It should not exceed two slabs and cesses should be abolished. Only then can the real benefits of GST be felt.
But right now we are still embroiled in the debate on sweet versus salty and their tax rates. By the way, salty snacks are also broken down into sugar by the body during digestion. So should GST also tax the post-digestive sugar in snacks?
Popcorn and cream buns aren’t the only strangely taxed items in India. There is 0% GST on brooms, 28% on vacuum cleaners. Shoes priced below Rs 1,000 are taxed at 5%, shoes more expensive than this are taxed at 18%. AC restaurants are taxed more than non-AC restaurants.
Many of these policies stem from the pre-liberalisation mindset of taxing whatever is good, fun and comfortable. And if something is of high quality or used by affluent people then it should be taxed more. Whereas GST is already a percentage-best tax, which ensures that higher priced items will pay more tax.
Budget 2025 is an opportunity for GST-reforms. We need to simplify the tax slabs and ensure that more than 98% of items fall in one or two slabs. This mentality that luxury things are bad will also have to be changed. (These are the author’s own views)
