Perverse incentives explain why GST is a confusing mess
The Goods and Services Tax (GST) Council recently decided to treat multi-utility vehicles (MUVs) with a minimum length of four metres, an engine size of at least 1,500cc, or a ground clearance exceeding 170 mm as sport-utility vehicles (SUVs). These vehicles used to attract 20% GST but will now attract 22% GST. MUVs that don’t match the prescribed criteria will continue to attract 20% GST.
Another of the council’s latest decisions is that popcorn sold at cinemas will attract different rates of GST depending on whether it is bought along with movie tickets or separately. This isn’t an isolated case. GST is levied at 18% on kulfi but at 5% on sandesh, though both are varieties of Indian sweets.
It defies logic that kulfi is seen as a luxury while sandesh isn’t. The true extent of muddle-headedness is perhaps best demonstrated by the council’s decision this week to tax online gaming the same way as horse racing and other forms of gambling by levying 28% GST on the entire turnover of gaming firms. In doing so, the council has confused games of skill with those of chance, and in the process hamstrung an upcoming industry with significant potential to create jobs.
It’s safe to say the GST Council is turning out to be one of the greatest frustrations in India’s quest to improve the ease of doing business and restart the private-investments cycle to help create jobs quickly for the millions of young Indians entering the labour force. The point of moving to a GST regime was to have a simple, predictable tax. What has been the GST’s record? According to one estimate, as of 6 November 2022 the Central Board of Indirect Taxes and Customs (CBIC) had published more than 900 notifications and over 1,100 circulars and orders since GST
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