India has recently moved to simplify its Goods and Services Tax (GST) system by rationalising the number of tax slabs. However, Finance Minister Nirmala Sitharaman has made it clear that the country is “not yet” prepared to move to a single-rate GST system. While the idea of one rate has been discussed and remains aspirational, multiple factors—including economic diversity, revenue implications, and fairness—mean that multiple slabs will remain for now.
What the Government Says
- In an event in Kolkata, FM Sitharaman affirmed that while the government has reduced the number of GST slabs, moving to just one rate is not feasible at this stage.
- She clarified that the existing four-rate GST structure (5%, 12%, 18%, 28%) was not arbitrary—it was arrived at after aligning old state-level taxes with appropriate slabs.
- The forthcoming reforms, dubbed “Next-Gen GST,” focus on simplification, fewer rates, relief for lower-income groups, and better compliance.
Why India Isn’t Ready for a Uniform GST Rate — Key Constraints
- Economic & Income Diversity
India has large disparities in income levels across states, regions, urban vs rural populations. A single rate may disproportionately burden lower-income households, as essentials might get taxed higher. - Fairness & Regressive Tax Concerns
Experts argue that GST must maintain lower rates for essential goods / services to protect the poor. A uniform rate risks making the tax structure regressive—i.e. hurting people who spend more of their income on basics. - Revenue Implications
States depend heavily on GST revenues; reducing slabs or going to one rate could lead to revenue shortfalls unless carefully calibrated. Different rates help the government retain flexibility. - Compliance Challenges & Tax Base
Tax compliance, ease of administration, classification of goods/services are still complex. A simpler, fewer-slab system makes sense first. Before moving to one rate, the state of compliance, taxable base expansion, and effective collection matters. - Political & State-Level Considerations
Different states have varying revenue needs, cost structures, and socio-economic conditions. A one-rate GST may not satisfy all, especially states that currently get more revenue from higher slabs.
Recent Changes & What They Imply
- The GST Council has recently reduced the number of slabs by merging certain rates, aiming to simplify the system. The new two main slabs will be 5% and 18%, along with higher rate(s) for luxury/demerit goods.
- These adjustments are part of the “Next-Generation GST” reforms. The goal: fewer slabs, clearer compliance, better relief for common consumers, while ensuring states’ revenue stability.
Expert Views & Projections
- Experts such as Ajay Rotti highlight that while a move to uniform rate is desirable for simplicity, current income levels, consumption patterns, and the need to protect essential goods make it premature.
- Former chief economic adviser Arvind Subramanian has also suggested that a three-slab structure could be a more practical intermediate step before any thought of a single rate. The Economic Times
Possible Path Ahead
- Continued rationalisation: further merging of middle slabs (12% / 18%), perhaps trimming certain rates or gradually narrowing the gap between them.
- Incentives for higher compliance, strengthening administration, to reduce leakage, which would allow room to lower rates without hurting revenues.
- Ensuring that any reform includes protections (lower rates, exemptions) for essentials, to maintain equity.
- Periodic reviews by the GST Council, keeping states’ feedback in account, so that rate changes don’t destabilize state budgets.
Conclusion
India’s journey toward a simpler GST has made progress with the reduction of slabs. However, according to the Finance Minister and economic experts, the country is still not ready to adopt a single-GST rate. Economic disparity, protection for the poor, revenue stability, compliance, and fairness remain paramount concerns. For now, multiple rate slabs—albeit fewer—seem to be the practical middle ground until India’s economic landscape and tax administration evolve further.
