In India, consumption taxes make up over 62% of total tax revenue (more than income and property taxes).
- Since GST contributes half of this, understanding its burden is crucial.
Key Findings
- GST is Progressive: Higher-income groups pay a larger share, reducing post-tax inequality. GST Burden:
- Rural: Bottom 50% pay 31%, top 20% pay 37%
- Urban: Bottom 50% pay 29%, top 20% pay 41%
- This contradicts the 2023 Oxfam report, which claimed the poor paid two-thirds of GST.
- Multiple Slabs Help: Essential goods and services are taxed at lower rates (e.g., health, education) or are exempt (e.g., food), making GST fairer.
- The paper warned that increasing the tax rate on items in the 5-12 per cent bucket may increase the tax burden on those in lower consumption classes.
- For simplifying GST regime, there is a proposal for removal of the 12%GST rate by shifting some items to the 5%slab and others to the 18%.
- The paper warned that increasing the tax rate on items in the 5-12 per cent bucket may increase the tax burden on those in lower consumption classes.
Changes in GST rate structure can impact consumer groups differently, depending on what goods and services they consume. Policymakers should consider these distributional effects while revising GST rates.