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The GST maze

LiveMint logoLiveMint 29-03-2017 Livemint

Is Kit Kat a chocolate or a biscuit? Is coconut oil considered hair oil or cooking oil?

These may seem trivial questions to be raised in a parliamentary debate before the formal shift to a radically new indirect tax structure in India. This newspaper has been a strong votary of the goods and services tax (GST). The new tax will integrate the internal market, tax final consumption rather than intermediate goods and help reduce tax evasion. However, the ideal GST should have had just three rates—essential commodities that would be free of tax, almost everything else taxed at a modest rate and a few sin goods that would attract a higher tax rate.

What we are now moving towards is a complex GST with several slabs as well as relatively high tax rates.

Hence the questions about Kit Kat and coconut oil—and the tax to be imposed on them. Each item produced could be the focus of intense lobbying.

This is just the sort of 1970s-style confusion that tax officials love but fiscal economists hate.

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