Since its introduction in 2017, India’s Goods and Services Tax (GST) was envisioned as a transformative step towards a unified and transparent taxation system. However, over the years, it has morphed into a labyrinth of confusing slabs, inconsistent provisions, and loopholes
Ever since a reformative step of introducing the Goods & Service Tax (GST) Act was introduced in the country on July 1st, 2017, there has been a regular practice of changing tax structure in an ever-confusing GST regime with too many confusing and complicated provisions incorporated in the system.
India is perhaps the only country in the world where there are so many GST slabs added by further confusing cess without any systematic tax slab on so — called luxury items. Countries that have adopted the GST system usually have a single tax rate. Even then, petroleum products are out of the purview of the GST regime. The present haphazard GST system has resulted in much-increased cash transactions — undoing the good done by the harsh step of demonetisation of the old currency of rupees 500 and 1000 — which was also aimed to lead the nation towards a cashless economy.
The input-tax-credit system in GST regime in manufacturing is the biggest corrupt practice of tax evasion where left-out GST invoices by ordinary customers are sold by traders to consuming manufacturers or producers to avail false input-tax-credit — where cash is paid back by traders to those purchasing left-out GST invoices of actual consumers — bringing more currency in circulation, this being the reason of basic motive of currency — demonetisation being failed where currency in circulation rapidly increased rather than projected decrease.
An annual forensic audit may be made compulsory on claims made for input-tax-credit by manufacturers/producers to avoid false claims of excessive input-tax-credit in these sectors. Rather, study should be made if, with the abolition of an excessively high 18 per cent GST slab, input-tax-credit can be altogether abolished from manufacturing/producing sectors, retaining it only on tradable commodities.
False claim of input-tax-credit is also otherwise possible when there exists a senseless provision to provide input-tax-credit on expense items that are debited as expenses in profit–loss accounts and balance sheets of traders and manufacturers. Input-tax-credit must not also be allowed on assets for which depreciation is claimed in preparing balance sheets. Like input-tax-credit is not allowed on car expenses, the same system should be applicable for all types of expenses.
Such abolishing benefits of input-tax-credit on expense items and assets will in no way affect normal consumers but will result in a heavy increase in revenue-earning through GST which then can be utilised to abolish at least excessively high 18-per cent GST slab by moving some items in higher GST slab presently of 28 per cent (suggested to be marginally higher at 30 per cent) and reducing tax slab on remaining items to 12 per cent GST slab. GST slab of 5 per cent can then be marginally increased to 6 per cent — abolishing altogether slab of 3 per cent. Such a slight increase of 5 per cent to 6 per cent and 28 per cent to 30 per cent will not be under criticism because such an increase together with the abolition of input-tax-credit on expense items and assets will pave the way for abolishing the harsh 18 per cent tax slab which is always considered to be high. Thus, GST slabs should be reduced basically to just four slabs i.e. zero, six, twelve and thirty per cent — thereby nominally increasing the present 5 per cent GST slab marginally to 6 per cent and replacing 28 per cent with a 30 per cent GST slab. Gradually, even slabs of 6 and 12 per cent may also be replaced by a new 10 per cent tax structure. Zero per cent GST slab may only be retained on totally unbranded raw materials that can not be consumed without giving a finishing touch like agricultural products, fish, meat, cotton yarn etc. Only limited items may attract a 6 per cent tax slab. All other items may be uniformly taxed at a 12 per cent GST slab which should also be a tax slab for the service sector which presently attracts an 18 per cent GST slab.
The complete GST system and website should be overhauled in a manner that educated persons may get registered under GST and also may be able to file GST returns themselves. It is unnecessary to have too many classifications under service sector even though all are under the same GST slab of 18 per cent presently. The useless system of nominal tax deducted at source for GST, which is hardly used in practice, should be altogether abolished. Otherwise, any such deducted tax should be auto-reflected in the GST accounts of affected ones, abolishing the cumbersome practice of filing a new monthly return to get a credit for deducted GST. With the GST slab of 18 per cent abolished and the service sector then attracting just 12 per cent GST, those with income of rupees ten lakhs or more (instead of the present rupees 20 lakhs) can be brought under the GST regime like was the system before the GST regime. It is illogical to keep lawyers out of the purview of the GST regime.
All items of long-term use like cars, air-conditioners, TV sets, refrigerators and electrical & electronics items may attract 30 per cent GST while their parts may uniformly attract 12 per cent GST. Unmindful policy framers brought clutch plate and clutch bearing under different GST slabs of 18 and 28 per cent. Likewise, similar items sold by confectioners like sweets, biscuits, napkins (salted food items) etc. attract different GST slabs — with luxury sweets causing diabetes attracting just 5 per cent GST while napkins (salted food items) attract 12 per cent GST. Invoices for items like gold jewellery can be drawn in two parts — one for metal and embodied items and the other for making charges, so that the suggested 12 per cent GST may be payable only on making charges while gold/silver and embodied items may attract a 6 per cent GST slab. Cess on extra-luxurious items should be replaced by additional GST slabs in multiples of 60 per cent, also bringing petroleum products under the GST regime to ensure uniform pricing of petrol and diesel in all states.
Abolishing the 18 per cent GST slab will be more than compensated by clubbing lower slabs of 3 and 5 per cent into a single 6 per cent GST slab. The input-tax-credit (ITC) system should not apply to non-tradable commodities and services like has been done, and rightly too, in the case of car expenses for non-commercial use.
All Government services including fairs and select postal items (like Speed Post) should be exempted from GST to avoid unnecessary Government accounting by putting tax from one Government pocket to another. Otherwise also, it was indeed silly to have some postal services under GST and the rest of others without GST.
There have been cases where some Government departments had to pay penalties for default in filing GST returns or late payment of GST. Exempting all Government services from GST will result in the saving of Government resources and manpower and different Government departments will be free from filing GST returns. However, any revenue loss in case all Government services are exempted from GST should be prevented by absorbing the present applicable GST in the cost of the Government service itself.
As far as possible, the cost of Government services should be in round figures. For example, presently local Speed Post tariff for the first 50 gms slab is rupees 18 which can be marginally increased to rupees 20 (GST exempted). In case cess is replaced by additional GST slabs in multiples of 60 per cent, all petroleum products that are presently out of the purview of GST can then be brought under GST — making prices of all petroleum products uniform throughout the country. It is highly improper that prices of petroleum products vary by even more than 30 per cent in the country.
While petrol was priced at just rupees 82.46 per litre in Andaman & Nicobar on May 9th, 2025, the same was priced at rupees 109.60 per litre in Andhra Pradesh with petrol costing rupees 94.77 per litre in Delhi on the same date May 9th, 2025.
Petroleum products in case becoming uniform after being under GST network then can be in round figures. Petrol, diesel, and kerosene then can be priced in multiples of rupees one inclusive of GST while LPG gas refill can be in multiples of rupees 50 inclusive of GST. It will not practically affect consumers because LPG delivery persons usually keep balance money as “tipsâ€!
(The writer is a RTI consultant and an analyst. Views are personal)
