GST: Middle Class and Social Justice | Akshint Joseph, Karamala Areesh Kumar

The Goods and Services Tax (GST) was first imagined under former Prime Minister Atal Bihari Vajpayee’s administration goal of a ‘one nation, one tax’ system. It was first introduced historically as a tax regime in France in 1954 and was later adopted by several countries such as Australia, Spain, Vietnam and the United Kingdom.

GST is an indirect tax imposed on the various goods and services supplied by the country. It serves as a multi-stage, destination-oriented tax levied on multiple value additions. The goal of the government’s introduction of the Goods and Services Tax was to do away with the redundant, superfluous mosaic of indirect taxes such as the VAT, Central Sales Tax, Purchase Tax and the Entertainment Tax, significantly hampered the functioning of various Indian businesses. This is because companies had to deal with numerous different taxes and added restrictions to their business, but in some situations, even witnessed ‘taxes upon taxes’ whereupon charging excise duties, companies had to pay the VAT tax upon the full inflated value. As a result, the GST was heralded as the ‘End all be all’ of Indian taxes to solve the chaos of the Indian taxation system. The Goods and Services Tax was first legally introduced as a national tax through the 101st Constitutional Amendment Act of 2016 in India, passed by the Lok Sabha on the 8th of August, 2016, before being commenced nationally on the 1st of July, 2017.

The Goods and Services also introduced numerous tax slabs under the following percentages: 5%, 12%, 18% and 28%. These tax slabs were meant to be implemented based on the essentiality of the various commodities and services they were levied on. For instance, unbranded rice, essential for the weaker strata of Indian society, fell under the 0% tax bracket, while luxury items such as jewellery and cars fell under the 28% tax slab. As a result, the ultimate goal of the tax slabs was to improve purchasing conditions for the weaker sections of society while generating more significant levels of revenue and tax collection for the government under the other slabs.

However, it is crucial to note that the Indian Goods and Services Tax’s system of numerous tax slabs has been severely criticised by international organisations such as the World Bank as placing a huge compliance burden on businesses, particularly Small and Medium-sized Enterprises (SMEs), and is having a far-reaching negative impact on the Indian economy. In recent days, the extensively contested Supreme Court ruling regarding the usage of coconut oil as an edible oil and thus falling under the 5% tax bracket of the GST slab instead of the 18% tax slab bracket for hairstyle products, as well as the nationwide mocking towards the recently announced popcorn tax has showcased several failures of the GST tax slab system.

Despite its numerous controversies, the Goods and Service Tax enabled the government to collect more than 20 Lakh Crore INR in tax revenue during the 2024 Fiscal Year. This impressive tax collection was a new government record for indirect tax collection. However, the government’s tax reallocation system among the states has resulted in numerous centre-state conflicts and friction over what numerous South Indian states have claimed is an ‘unfair and unequal’ distribution and release of government funds based on state-level tax collections of GST.

However, it is crucial to focus on the effects of the Goods and Services Tax on the middle class and its failures in ensuring equitable social justice. Regarding benefits to the commoner, the Goods and Services Tax has lowered production costs, further decreasing consumer costs, including those of items such as vehicles and FMCG, and improving consumer purchasing power. Lower pricing as a result of GST has resulted in greater consumer demand, lower manufacturing costs and a drastic increase in employment rates. However, various prices relating to goods and services such as telecom and insurance, which are critical for the middle class, have risen under the 18% tax slab, which further increases the price of essential commodities; this is exacerbated by the numerous bizarre and confusing classifications of commodities under the numerous GST tax slabs which only further seems to complicate the taxation process.

The Goods and Services Tax has also critically denied social justice to numerous disadvantaged groups in Indian society. This is because GST exercises uniform tax rates across all income levels, which translates to equal taxes on all goods and services, regardless of the buyer’s income, which inevitably annihilates the principle of equality in taxation. Despite significant economic disparities, the Goods and Services Tax has also failed to distinguish between rural and urban areas. A digital GST framework has devastated small businesses that aren’t digitised, leading to job losses and increased unemployment rates among lower classes. Additionally, an 18% tax bracket imposed on essential sanitary and hygiene products, including feminine hygiene products such as tampons, has showcased stark levels of gender inequality within the Indian taxation system.

Ultimately, to solve these stark issues, the government needs to listen to the voices of the populace expressing concerns regarding the GST’s shortcomings and outright failures, implement reforms to the tax slab policy of the Goods and Service Tax, and increase business sector participation during the policy formulation process of the Goods and Service Tax. The government must also ensure social justice for all disadvantaged groups in Indian society. In the words of Arvind Subramanian, the nation’s former Chief Financial Advisor, the Goods and Service Tax was meant to be a Good and Simple Tax; right now, however, it is anything but.

(Authors: Akshint Joseph, Research Scholar, Department of International Relations, Peace and Public Policy (IRP and PP), St Joseph’s University, Bengaluru-560027, India. Email: akshintjoseph[at]gmail.com ; Dr. Karamala Areesh Kumar, Head, Department of International Relations, Peace and Public Policy (IRP and PP), St Joseph’s University, Bengaluru-560027, India, Email: areeshkaramalajnu[at]gmail.com, karamala.areesh[at]sju.edu.in)