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GST has reduced effective tax payable for all sectors, except power: Study

At 23.2%, the transport sector saw the largest drop in the marginal tax rate. At 0.9%, agriculture saw the lowest drop

Vipul Vivek | IndiaSpend 

Photo: Shutterstock

The goods and services (GST), rolled out on July 1, 2017, cut marginal rates–the real, effective a business pays, technically the difference between the pre-and post-rate of return on an investment–on businesses in India in all sectors, except electricity, which is exempt from the new regime, according to a new study.

The fall in marginal rates was in the range of 1-23 percentage points across sectors, according to estimates by Gaurav S. Ghosh, senior manager, EY, a global consultancy, and Jack Mintz, director of the school of public policy at the University of Calgary, Canada.

Marginal is the rate businesses end up paying on each new unit of investment after considering the effect of all statutory taxes levied. A higher rate means businesses have lower incentives for increasing investment and vice versa, the authors explained.

At 23.2%, the transport sector saw the largest drop in rate. At 0.9%, agriculture saw the lowest drop.

Overall, rate fell by five percentage points to 22% from 27%.

rate increased by 11.6 percentage points after was implemented in the sector. As the sector remains outside GST, businesses cannot claim credits for taxes paid on inputs, Navneeraj Sharma, consultant in the chief economic advisor’s office, and Arvind Subramanian, chief economic advisor, wrote in the Indian Express on December 7, 2017.

Source: Gaurav S. Ghosh and Jack Mintz


is paid on every transaction in the supply of goods and services, and the levied at one stage can be set off or deducted from the to be paid at the next stage.

India has dual GST–central (CGST) and state (SGST). There is also an integrated (IGST) on the inter-state supply of goods and services, which can be set off against CGST and SGST that is to be paid.

All goods and services are taxed under one of six slabs–0.25%, 3%, 5%, 12%, 18%, 28% (click here and here)–wherever they are purchased, according to the Central Board of Excise and Customs.

(Vivek is an analyst with IndiaSpend.)

Reprinted with permission from IndiaSpend, a data-driven, public-interest journalism non-profit organisation.

First Published: Fri, January 12 2018. 02:02 IST