Is one GST rate the final goal? Which countries have a single tax rate?
India has four GST rates now. The proposed GST reforms which could be unveiled later this year might have two GST rates, if the GST Council approves the government's idea. However, the eventual goal seems to be bringing it all down to only one GST rate.
Kolkata: What began in 2017 with four might get halved to two this year and, eventually, could pave the way to a single rate. Yes, we are talking about GST (Goods and Services Tax) and if reports and the natural progress of taxation is any indicator, GST in India could finally be a single rate. Sounds rather fantastic? But that's what officials are suggesting. And perhaps it could be rolled out if the proposed two-rate structure works well and results in a hike in revenue as the government envisages.
GST was introduced in July 2017. Down the years, GST has helped generate higher revenues and in FY25, the gross GST collection was Rs 22.08 trillion, which registered a 9.4% (y-o-y) rise on the FY24 collection. The average monthly collection in FY25 was Rs 1.84 lakh crore.
Many countries with a single GST rate
To be sure there are many countries in the world which have a single rate GST structure. A few examples are Australia (10%), Singapore (7%), Canada (5%) and New Zealand (15%). However, the countries that have moved to a single rate GST structure are developed economies which have more uniform earning and spending profiles. "Once the system is put in place and India becomes a developed nation, we can think about a single rate GST... The ultimate aim is to move to a single slab structure," an official has been quoted as saying. Significantly, GST was first introduced by France in 1954.
The new GST structure which would have two rates is designed to decrease tax rates and inject life into the economy with lower prices and lower input costs of the small businesses. if it works well, it could be a precursor to a single rate GST structure by 2047, the hundredth year of India winning Independence.
The current GST reform being planned as announced as a "Double Diwali" gift to the people by Prime Minister Narendra Modi on his Independence day speech. It is expected to have just two slabs of 5% and 18% with sin items such as tobacco attracting a 40% tax. The current 12% and 28% GST rates could be done away with. The GST Council will deliberate in the proposal and it is the body to take final decision on it.
GST reform could boost consumption
Financial ministry officials described the step as a "game changer reform". Also, the GST reforms seemed to get dovetailed with the government's broader objective of triggering consumption in the economy. This year, the government and Reserve Bank of India have already launched a pincer attack on the sluggish consumption. While the Finance Ministry has made an annual salary of Rs 12 lakh tax free, RBI has brought down the policy Repo Rate down by 100 basis points to 5.5% between February and June to make funds cheaper. Both are expected to boost consumption. The GST reform could be the third step in this direction. Lower cost of funds, lower direct taxes and lower indirect taxes can all work towards putting more money in the pockets of the people.
According to reports, if the proposed dual GST rates work out, almost all items in the current 12% tax rates will migrate to the 5% rate, Also a lot of the items in the highest 28% category (such as cement, ACs, TVs, fridge, washing machines) could from to the 18% rate, resulting in all-round trimming of prices. Inviting the states to cooperate, Modi said, "I hope that all states will cooperate in the initiatives of the central government."