The four- tier General Service Tax (GST) with variable tax band from 5 per cent to 28 per cent and exempting food grain from the tax regime should help in checking the inflationary trend. While the goods will have a multiple rate structure, there is no clarity provided on rates applicable to services. The present approach is a departure from international practice of single GST rate. This collaborative and consultative approach should successfully address the peculiar social, political and economic complexities in India. Though zero rating of necessities (essential goods) is welcome news and the actual benefit to consumer will depend on the items included in this category. Limiting zero rating to food grains or agriculture products may not lead to any significant reduction on tax costs for the consumers. Lower rate of 5 percent for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man. Also, tax costs might even go down for commodities to be taxed at 5 per cent provided the credits on procurements are fully allowed. While the lists are yet to be rolled out by the GST Council, all essential commodities and services, including education and health care should feature in the list of special concessional rate of 5 percent (if not zero rated). The inflationary impact on standard rated commodities should be minimal but services may become dearer by getting pushed to 18 percent slab. A lower rate could result in wider coverage which is the primary objective of GST which could also lead to more spending hence a buoyant economy, leading to a beneficial environment for business. It looks by keeping the lower rate on essentials the interests of common man seem to have played a key role. It would be interesting to know what the government deems as common use items. What is to be watched is the essence of the multiple split tax rates which will need to pass the test of industry acceptance on grounds of revenue neutrality and zero cascading across sectors especially in the 28 percent bracket. Indeed it is a good beginning yet it needs more focus on product classification to make the regime really consumer friendly.
