India became one of the 160 countries to welcome a unified tax regime at midnight. And by unified, we mean four slabs and an additional ‘sin tax’ of 40% to be implemented in rare occasions.
A comparative look at the rates in Asia and Europe shows that not only does India have the highest tax rates, but also by splintering a so-called unified structure, we’ve successfully made it a whole lot more confusing.
Although the government has categorically maintained that there are four slabs in the GST, there are seven categories of taxes in total:
- 28%
- 18%
- 12%
- 5%
- 3%
- 0.25%
- 0% (exempt)
Additionally, goods like luxury cars, tobacco, and aerated beverages will have 28 percent plus a cess, effectively taking the tax rate to around 40 percent.
Moreover, with the highest rate in the four slabs being at 28 percent, India easily has the highest GST rate in the world. Compared to India, even European countries like Denmark and Germany, where the standard of living is much higher, have lower tax rates.
The Congress had specifically demanded that a cap of 18 percent be put on GST and and the waiver of 1 percent tax which is levied by manufacturing states for five years to compensate them for potential revenue losses after the new system kicks in.
Although the BJP agreed to drop the 1 percent tax, they refused to impose a cap on the GST or include it in the Constitution arguing that the Parliament’s approval is needed every time the rates are revised. Moreover, the state governments which did not back the idea of a tax rate cap have also vetoed any move to spell out a tax cap in the Constitutional Amendment Bill. Most states want a standard GST rate above 20 percent.
However, the next three GST Council meetings will be held on the first Saturday of the months starting from August and the rates on certain items may change over the period.
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