Too Many Taxes

Context: Karnataka’s differentiation between a parota and a chapati to levy of GST taxes, reflects the continued complexity of the indirect tax regime even after the introduction GST.

Issues in Indirect Tax Architecture

• Complex and complicated tax system continues to remain. 
• Multiple tax rates do not align with the “one country, one tax” idea, with a multiplicity of taxes at the central and state levels.
• Indirect tax regime: neither as “good” nor as “simple” because of the problems of classification.
• Rising tax classification disputes even after reducing the number of tax slabs.
• Increasing bureaucratic discretion and opening the door for more rent-seeking.
• Push for the progressive indirect tax system, rather than ensuring the progressivity of the tax as a whole.

Conclusion: GST council needs to re-examine indirect tax architecture by rationalizing the tax structure and moving towards a fewer number of tax slabs with fewer exemptions and tax rates.