Cease the cess (need for structural reforms in GST), Pg6

Context:

• India’s GST system completes 8 years amid declining revenue growth, prompting fresh demands for structural reforms, including rate rationalisation and cess removal.

Key Highlights:

• GST collections in June 2025 fell to ₹1.85 lakh crore — lowest in four months.
• Year-on-year growth was 6.2%, with net revenue growth (post-refunds) at just 3.3%.
• Revenue from domestic transactions rose only 4.6%, barely outpacing inflation.
• Centre increasingly relies on non-shareable cesses, straining Centre-State fiscal federalism.
• The GST Council is reviewing reduction in the number of tax slabs.
• GST Compensation Cess continues beyond its original 5-year window, now extended till March 2026.

Detailed Insights:

• Sluggish GST growth signals both a slowdown in economic activity and deeper systemic inefficiencies in tax administration.
• Exclusion of petroleum products and alcohol undermines the vision of “One Nation, One Tax”, despite being major consumption items.
• State governments resist inclusion due to their reliance on these as independent revenue sources, limiting GST’s comprehensiveness.
• The Centre’s increasing dependence on non-divisible cesses reduces States’ share in central revenues, aggravating federal imbalances.
• The multi-rate GST structure (0%, 5%, 12%, 18%, 28%) complicates compliance; a rate rationalisation could enhance simplicity and reduce classification disputes.
• The GST Compensation Cess, originally intended to offset losses to States post-GST rollout (2017–2022), was extended to repay COVID-era borrowings by the Centre.
• Continuing this cess now risks turning a temporary relief measure into a permanent fiscal burden, undermining public trust and consumption sentiment.
• Removing the cess and rationalising rates may stimulate urban demand and restore credibility in tax policy.

Key Concepts Involved:

• GST (Goods and Services Tax): A comprehensive indirect tax replacing multiple Central and State taxes, levied on value addition at each stage of the supply chain.
• GST Compensation Cess: A temporary levy on items like luxury goods and tobacco to compensate States for GST-related revenue losses, earlier meant for five years (2017–2022).
• Cess: A tax imposed for a specific purpose and generally non-shareable with States. 
• Rate Rationalisation: The process of reducing and streamlining tax slabs under GST to simplify compliance and reduce classification disputes.

Mains Mock Question:

Q. Evaluate the structural challenges in India’s GST framework. In light of current fiscal trends, critically assess the case for removing the GST Compensation Cess and rationalising tax rates.