ADB praises GST, says it will reduce costs for lower-income sections

The Goods and Services Tax (GST) regime in India will tend to lessen the burden on the lower income section of the society but at the same time, increase the costs for higher income households, according to a blog posted on the Asian Development Bank (ADB) website.

"With the GST, in general, the tax rate on goods is likely to be reduced as compared to previously, and the tax rate on services increased. As households progress towards higher income brackets, the share of household budget spent on services increases and on goods declines," according to the blog written by Mukul Asher, Professorial Fellow, Lew Kuan Yew School of Public Policy.

 

"So the above overall trend would exhibit a tendency towards lower burden for low- and lower middle-income households, while the reverse is likely for upper middle income and high-income households. This would significantly mitigate the negative impact of the GST on the bottom half of the population," it said.

The GST Council has made efforts to ensure that the GST rates on any given good or a service is as close as possible to the old nominal tax rate to minimise disruptions to households and to businesses, it noted.

It has been about six weeks since GST became operational on July 1.

"Its impact on the overall economy business, households, and the government organisations is expected to be multi-faceted, and will be felt by different sectors over differing time periods in a dynamic and non-linear pattern," it said.

On the anti-profiteering rule under GST, Asher strongly urged "for the government to de-emphasise its provisions, and utilise it with a soft touch".

He also highlighted the urgent need to focus on a system of collecting and analysing household income and expenditure data, and making such data widely accessible.

"Lack of robust databases and analytical capabilities, including econometric studies, are hampering empirical-evidence based assessment of GST on household cost-of-living. This gap needs to be addressed," the blog stated.

The blog said that the timing of the GST has been favorable from the global and from domestic perspective in minimising the impact of the GST on the cost of living.

"The design of the GST and government initiatives has also helped in this respect. A more service-oriented culture, backed by technology and professionalism by the GST tax authorities could help sustain the apparently small initial impact of the GST on the cost of living over a much longer period," it said.

Asher also lauded the efforts of the Centre, some states and tax agencies in monitoring and facilitating GST implementation to mitigate the impact on the cost of living.