IMF asks India to consider simpler GST rate structure
What's the story
The International Monetary Fund (IMF) today described the Goods and Services Tax (GST) as a "milestone reform" in India's tax policy, which unifies numerous indirect taxes across all states of the federation and the central government. However, it has pushed for a simplified structure, saying the multiple rate structure and other features could give rise to high compliance and administrative costs. Here's more.
Information
GST was introduced on July 1, 2017
The Goods and Services Tax is an indirect tax levied on the supply of goods and services in India. It came into effect on July 1, 2017.
Dual rate structure
Dual rate structure in GST preserves revenue neutrality
A dual rate structure with a low standard rate and an additional higher rate on select items can be progressive and preserve revenue neutrality, the IMF said in its annual country report. It said that with the consumption basket of the rich taxed at higher rates than that of the poor, the GST as presently designed has an effective tax-rate rising with household consumption.
Tax slabs
India has four or more GST rates: IMF
However, India belongs in a small group of five countries having four or more GST rates: four non-zero rates of 5%, 12%, 18%, and 28%; special low rates of 3% on gems, jewelry; 0.25% on rough diamonds; and a GST "cess" levied on demerit goods. In comparison, among 115 countries with VATs, 49 have a single rate, and 28 have two rates, IMF noted.
Unified market
IMF says GST created a unified national market
GST created a unified national market for the first time by lowering internal barriers to trade, effectively establishing a free trade agreement for a market of over 1.3bn people, said Ranil Salgado, IMF Mission Chief for India. The tax is expected to increase the amount of economic activity taking place in the formal sector of the economy, leading to more reliable jobs, he added.