GST in India
1. Tax Structure & Progressivity
| Aspect | Findings |
|---|---|
| Overall Tax Revenue | Consumption taxes = 62% (GST alone = ~31% of total revenue) |
| Progressivity | Higher-income groups pay larger share:- Rural: Top 20% pays 37% vs Bottom 50%’s 31%- Urban: Top 20% pays 41% vs Bottom 50%’s 29% |
| Inequality Impact | Reduces post-tax inequality (contradicts Oxfam 2023) |
2. Multi-Slab System: Equity Mechanism
| GST Slab | Coverage | Impact on Poor |
|---|---|---|
| 0% | Food grains, education, healthcare | Essential items exempted |
| 5% | Milk, edible oil, transport | Low burden on necessities |
| 12% | Processed foods, mobile phones | Moderate burden |
| 18% | Electronics, financial services | Primarily affects affluent |
| 28% | Luxury cars, tobacco, aerated drinks | Targets high-income consumption |
Why Progressive? Poor spend higher % of income on essentials (0-5% slabs), while rich consume more luxury goods (18-28% slabs).
Policy Warnings & Proposals
Key Concerns
- Shifting 12% slab items: Raising rates for 5-12% bracket items (e.g., packaged cereals, textiles) could increase burden on poor.
- Distributional Impact: Rate changes must consider consumption patterns (e.g., raising fertilizer GST hurts farmers).
Simplification Proposal
| Option | Mechanics | Risks |
|---|---|---|
| Merge 12% into 5% | Shift items like medicines, footwear to 5% | Revenue loss; may widen fiscal deficit |
| Merge 12% into 18% | Shift items like AC parts, hotels to 18% | Inflation in mid-tier goods |
Contradicting Oxfam 2023
- Oxfam Claim: Poor pay 64% of GST.
- Reality Check:
- Methodological flaw: Oxfam measured GST as % of income (where poor spend 50-60% of income on consumption vs rich’s 20%).
- Actual burden: As % of total GST collected, rich contribute more (see table above).