The last phase of the effort to lower GST rates will shortly be presented to the GST Council. According to statements made by Union Finance Minister Nirmala Sitharaman, she is personally supervising the process to guarantee that GST rates are simplified. However, what does this signify? Will there just be a rate decrease, or will there be significant structural changes? This continues to be a major point of contention amongst political parties.

A thorough restructure of GST rates is unquestionably required, as opposed to haphazard changes that ignore underlying problems. The GST tariff structure is too complicated and onerous under the current system. For example, popcorn is taxed at three separate rates, while cream buns are taxed differently than normal buns. Instead of being just window decoration in the name of reform, one expects that GST 2.0 would lead to a simplification of tax slabs and fully reflect the “one nation, one tax” idea.

Arvind Subramanian, a former chief economic advisor, claims that there are already about 100 distinct tax rates under the GST system. Large-scale tax evasion is made possible by this intricacy, which also throws a heavy compliance cost on enterprises.

By combining many taxes into one framework, India’s Goods and Services Tax (GST), which was implemented in 2017, sought to streamline the indirect tax structure. But over time, issues have been brought up about excessive GST rates on necessities, which affect both consumers and companies. A decrease in GST rates is becoming more and more popular for a number of reasons.

High GST rates have the potential to discourage consumption, particularly for necessities. By increasing consumer spending, lower GST rates may boost demand and spur economic growth. Tax rate reductions may also help businesses bounce back from downturns in the economy, especially in the aftermath of a pandemic.

Furthermore, tax evasion and the expansion of the informal sector are often encouraged by high tax rates. Since firms would be more inclined to register and pay taxes rather than turn to illicit ways to evade high taxes, compliance is expected to improve if GST rates are rationalized.

The NDA administration and the prime minister anticipate that SMEs would be the foundation of the Indian economy. Nevertheless, these companies sometimes face difficulties due to high GST rates, which raise operating expenses. Small firms may benefit greatly from lower GST rates, which would increase their competitiveness, encourage entrepreneurship, and make a substantial contribution to the $5 trillion economic target.

A rising economy like India needs affordability and increased buying power, which may be achieved by lowering the GST and lowering the cost of commodities. The expansion of MSMEs may thus be aided by this.

Additionally, competitive tax rates will increase India’s appeal as a location for both global and local investors. Investment in important industries like manufacturing, infrastructure, and services is discouraged by high indirect taxes. India can make conducting business easier and draw in more investment by lowering its GST rates.

Experts stress that high GST rates have had a negative impact on a number of businesses, including real estate, autos, and hotels. Tax reductions in these industries have the potential to boost demand, create jobs, and have a beneficial multiplier impact on the economy.

In order to promote economic development, improve compliance, assist SMEs, and alleviate consumer hardship, India must lower its GST rates. A well-rounded strategy that prioritizes economic stimulation while taking revenue implications into account may contribute to the development of a more effective and equitable taxation system. In the long term, rationalizing GST rates would help to strengthen and stabilize the Indian economy.