Lowering tax rates is always a good thing as long as there are sound economic reasons for doing so. It is in tune with the ancient Indian principle of taking taxes as the bee collects pollen. No system is that perfect but burdening the people as little as possible and using the taxes to efficiently provide services and necessary infrastructure should be the general objective of every government.
The Goods and Services Tax was introduced by the Modi Government to remove the many anomalies and shortcomings that existed in the system. It was by no means perfect, but it did rake in considerable amounts of money. This got around the enormous level of tax evasion in the country in the commercial sector. But it is not just enough to obtain such increase in collection; it was just as important to use the funds properly so that the economy was further boosted. It can be said that the Government succeeded in this regard by allocating funds for projects and schemes that led to a general improvement in the quality of life and ease of doing business.
It was also acknowledged from the beginning that GST is an ongoing project and there is room for improvement. While some demands regarding change in taxation rates were politically motivated, most were based on the experience of various sectors of the economy and consumer needs. As such, the government has introduced the next stage of reforms which, by and large, have reduced rates considerably, and in some cases eliminated tax altogether. The confidence to do this comes from the fact that the GST network is now well established and most of the transactions have been brought into the formal economy.
This does not mean, of course, that corrupt practices will be altogether eliminated. However, reform does reduce the number of reasons to do so. Care will have to be taken that the benefits are passed on to the customer if the benefits are to happen. The expectation is that the decreased rates will be more than compensated by the increase in consumer spending. The reason for having introduced the reform before Dussehra and Diwali is because that is when traditionally there is a spending spree. The reduction in prices may further loosen the public’s purse strings. If the market cooperates with the government by ensuring on-record transactions, it will encourage further reforms that will not only boost the economy but also lead to distributive justice.
