The goods and services tax (GST) regime began on the wrong foot thanks to multiple rates that made little economic sense as well as onerous compliance requirements that have messed up the working capital cycles of smaller firms.
There is no doubt that the early version of GST continues to be far better than the indirect tax regime it has replaced. But neither can it be denied that GST Ver 1.0 falls short of the simple national value-added tax that was expected.
Against this backdrop, the changes to the GST structure that were announced last week are welcome, especially to pare the list of items taxed at the highest rate down to 50.
It is not clear whether this rationalization of indirect taxes is because of the fear of a voter backlash or confidence that the revenues that are coming in are stronger than expected. Either way, the finance ministers in the GST Council have done well. They now need to ensure that India moves to the originally recommended GST design quickly—with wider coverage, fewer slabs and lower rates.
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