Parsa Venkateshwar Rao Jr | GST Rejig A Tax Bonanza? Poll-eve Step No ‘Reform’

The changed GST rates will become effective from September 22, the beginning of Navaratri and of the year’s festive season. The timing was no coincidence. Prime Minister Narendra Modi and finance minister Nirmala Sitharaman have timed it well. The ostensible reduction of the four GST rates or slabs into two, from 28%, 18%, 12% and 5% to 18% and 5%, is being offered as a tax bonanza. Prime Minister Modi is betting on its cascading cheer in the coming Assembly elections in Bihar, where the BJP is facing an uphill task with a weakened chief minister Nitish Kumar at the helm in the state.

The GST change, being marketed as a major tax reform, is also being projected as a major policy tweak that will stimulate the economy, which has been as quiet as the sea on a windless summer day. The world economy is caught in the maelstrom of US President Donald Trump’s tariffs, and there is a pervasive uncertainty, both economic and political, across the world. The Indian government has been self-congratulatory that India is a leading growth centre among the major economies. The truth, however, is that India cannot rest on its laurels of sub-seven per cent GDP growth. It has to be pushed into double digits if India has to move into the next higher orbit of economic growth.

The politics behind the decision to slim the GST slabs is quite evident. Ms Sitharaman unwittingly let the cat out of the bag. She said in her interviews after it was decided to reduce the GST slabs to two, 18 per cent and five per cent, that Prime Minister Narendra Modi had told her to “please do something with GST”, and she went to the GST Council, comprising the finance ministers of all states headed by the Union finance minister, to effect the change from four slabs to two. The principle of GST was that it would be a collective decision of the Union and state finance ministers, and not the fiat of a wilful PM. In the decade of Mr Modi as PM, we have learned that decisions are made by the Prime Minister and not the Union Cabinet, and in institutions like the GST Council, it is again the PM’s directives that are carried out. Prime Minister Modi would claim during election campaigns that “we have carried out reforms in GST”, when it was supposed to have been done in consultation with the states. Ms Sitharaman would say: “Prime

Minister Modi wanted these reforms, and they were done.”

What the ostensible GST reforms mean is a reshuffling of slabs, something akin to tweaking of tax rates on different items in the pre-GST era. This act of reshuffling should not ever be dignified with the label of “reforms”. But that is political expediency, and Mr Modi is adept at making a virtue out of necessity. The cheerleaders and commentators had urged the Prime Minister in their columns that in the face of the catastrophic Trump tariffs, the remedy would be to undertake major economic reforms of the 1991 kind. Of course, what these reforms should be was left to the imagination both of the person urging reforms and the government which was asked to get on with them. So, the GST “reforms” came out of the proverbial rabbit’s hat.

It is proclaimed that the GST now comprises just two slabs, 18 per cent and five per cent. The supposed “sin” goods slab of 40 per cent is not to be counted. This logic looks fuzzy enough -- of why the 40 per cent slab is a non-factor, when the revenue from this slab could be hefty enough to buoy up the government’s tax coffers. While many of the goods and services that fell in the 12 per cent slab have now been pushed into the five per cent slot, quite a few of the items in the 18 per cent slab have been put in the five per cent slab. Many items in the 28 per cent slab have been put in the 18 per cent slab. The remaining items, like aerated and caffeinated drinks and luxury cars, have been pushed into the 40 per cent slab. Ms Sitharaman and others in the government are likely to argue that the people affected by the 40 per cent GST would not be too many, and even if there are, they deserve to be in the dock because these items are indulgences. The 40 per cent slab expresses strong moral disapproval. The term “sin goods” screams morality!

When the GST was introduced in 2017, then chief economic adviser Arvind Subaramaniam had said in ecstatic tones that the data GST would provide would show the exact consumption patterns of Indians. That sounded an exciting enough prospect to the economist as well as the person on the street. But look for the details of the GST collections. You will not get the figures for GST collected under the five per cent, 12 per cent, 18 per cent and 28 per cent slabs. It would have given indications on the purchasing power of the people, how much each section is spending. Logically, those paying the 28 per cent slab would be fewer. It is possible that the GST collected under the 28 per cent slab would be significantly higher, though the number of people paying it would be less. But then this government has never been transparent. All that we get in terms of details of the GST collection is how was much was the states’ collection, and how much from the Centre. This is a simple detail of the State GST (SGST), Central GST (CGST), and the Integrated GST (IGST) to account for import duties. There is the further detail about which state had the higher GST collection. In 2024, Maharashtra stood at the top of the table. The total GST collection for 2024-25 was Rs. 22.08 lakh crores, and the total number of GST tax payers was 1.51 crores.

The finance minister has assured that TVs, cars, refrigerators, motorcycles below 1500 cc are cheaper at 18 per cent. People who are looking over their shoulders for jobs are expected to be grateful to the government for this manna from heaven. As long as the coffers are overflowing, the government is happy. How the people are paying for every little transaction they make to meet their needs is not of much concern to the grand tax collector that this government has become.