GST #2: How has it Fared?
This blog goes into the details of implementing GST. One of the major problems is the “inverted duty structure”. Pranay Kotasthane explains the problem well with an example: “Inadvertently, this resulted in some raw materials being taxed at a much higher rate than the final product. For example, the tax on rubber used in hawai chappals is a mighty 18 per cent... On the chappals itself, the tax rate is just 5 per cent presumably because we have to save this laghu udyog. This situation is what’s called an inverted duty structure.” Why is this a problem? Kotasthane expands: “Assume the hawai chappals are sold at ₹120 to customers. The output tax payable would be ₹6/chappal (5 per cent of 120). However, since the GST is a value-added tax, the chappal maker can net out the taxes she has paid for the inputs. Assuming that she purchased rubber of ₹50, she has already paid a tax amount worth ₹9 to her supplier (18 per cent of 50). The net tax to be paid by her is ...