GST 2.0 to Ease Rural Household Expenditure

GST 2.0 to Ease Rural Household Expenditure

Why in the News ?

A FICCI analysis shows that under GST 2.0, more than 75% of rural expenditure and 66% of urban expenditure will fall under the nil or 5% tax rate, making the new tax structure more equitable and simplified. This change is expected to have positive implications for poverty alleviation and the food security system in India, including the Public Distribution System (PDS) in India.

Key Findings of FICCI-TARI Report:

• The Federation of Indian Chambers of Commerce & Industry (FICCI) with Thought Arbitrage Research Institute (TARI) studied the new GST structure.
• Over 75% of rural household spending will be taxed at nil or 5%, up from the current 56%.
• For urban households, the share rises from 50% currently to 66% under GST 2.0.
• The nil tax slab will account for 29.9% of items, covering 36.5% of rural and 32.9% of urban expenditure.
• The 5% tax slab expands to 40.5% of items, covering 38.8% of rural and 33.3% of urban spending.

Restructuring of GST Slabs

• The 12% slab, currently covering 21.5% of items, will be eliminated under GST 2.0.
• The 18% slab will reduce from 26.6% of items to 23.1%, easing the tax burden.
• The ≥28% slab, including the new 40% category, will shrink from 2.2% of items to just 0.5%, accounting for 0.2% of rural and urban spending.
• This restructuring significantly reduces regressivity in taxation for households.
• Overall, the new system reflects a simpler, pro-consumer GST regime that could positively impact the distribution of subsidized food grains and support poverty alleviation efforts, including programs like the Antyodaya Anna Yojana.

Implications for Food Security and Poverty Alleviation

The GST 2.0 restructuring is expected to have far-reaching effects on India’s food security system and poverty alleviation initiatives:

• Lower tax rates on essential goods could improve affordability, potentially reducing the strain on the PDS in India and benefiting ration card holders. This could lead to a reduction in the central issue price of food grains, making them more accessible to vulnerable populations.
• The simplified tax structure may enhance supply chain management efficiency, benefiting both consumers and fair price shops. This could lead to improved food grain distribution and potentially allow for innovations like doorstep delivery of rations, while also addressing issues of leakage and diversion in the system.
• Reduced tax burden on rural households could complement existing poverty alleviation programs and potentially pave the way for discussions on universal basic income schemes. This could also support supplementary nutrition programs, enhancing overall nutritional security.
• The new tax regime might facilitate easier implementation of direct benefit transfer programs related to food security and nutrition. It could also improve beneficiary identification processes, reducing the risk of ghost beneficiaries and ensuring that support reaches those who need it most.
• Improved affordability of diverse food items could contribute to addressing micronutrient deficiency and promoting dietary diversity among vulnerable populations, enhancing overall nutritional security.
• The restructuring may indirectly support the minimum support price mechanism by reducing tax-related costs in the agricultural supply chain.
• GST 2.0 could potentially support interstate portability of ration cards, further enhancing the efficiency of the PDS in India. This, coupled with improved transparency measures, could lead to a more robust and accountable food security system.

• It replaced multiple indirect taxes such as excise duty, VAT, service tax.
• GST is governed by the GST Council, chaired by the Union Finance Minister.
• It has a dual structure: Central GST (CGST) and State GST (SGST), with Integrated GST (IGST) for inter-state supply.
• The four major slabs under GST are 5%, 12%, 18%, and 28%, though exemptions and new adjustments (like nil and 40%) exist.
• The new structure aims to simplify taxation while supporting broader economic goals including food security and poverty reduction, potentially benefiting initiatives like the Integrated Child Development Services scheme and improving supplementary nutrition programs.

In conclusion, GST 2.0 represents a significant step towards a more equitable tax system that could have positive ripple effects on India’s food security infrastructure, including the PDS and fair price shops. By reducing the tax burden on essential goods and services, it has the potential to enhance nutritional security, support existing poverty alleviation programs, and pave the way for more efficient food grain distribution systems. The implementation of transparency measures and improved beneficiary identification processes could significantly reduce leakage and diversion in the system, addressing long-standing concerns about ghost beneficiaries. As the new tax structure is implemented, it will be crucial to monitor its impact on ration card holders and ensure that the benefits translate into real improvements in food security and poverty reduction across the country, potentially leading to a more robust and efficient Public Distribution System in India.