{"id":49111,"date":"2025-07-24T21:03:44","date_gmt":"2025-07-24T15:33:44","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=49111"},"modified":"2025-08-01T18:02:59","modified_gmt":"2025-08-01T12:32:59","slug":"gst-burden-indian-households-study","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/24-07-2025\/gst-burden-indian-households-study","title":{"rendered":"Study on GST Burden on Indian Households"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>In Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A recent study analysing <strong>India&#8217;s Goods and Services Tax (GST)<\/strong> regime using the <strong>2022\u201323 Household Consumption Expenditure Survey (HCES)<\/strong> has revealed that the <strong>bottom 50% of consumers bear the same GST burden as the middle 30%<\/strong>, raising important questions about the tax system&#8217;s progressivity and equity.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Findings from the Study<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The study by <strong>Prof. Sacchidananda Mukherjee<\/strong> of the <strong>National Institute of Public Finance and Policy (NIPFP)<\/strong> highlights the following:\n<ul class=\"wp-block-list\">\n<li><strong>Rural Areas<\/strong>:\n<ul class=\"wp-block-list\">\n<li>Bottom 50% bear <strong>31%<\/strong> of the GST burden<\/li>\n\n\n\n<li>Middle 30% also bear <strong>31%<\/strong><\/li>\n\n\n\n<li>Top 20% carry <strong>37%<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Urban Areas<\/strong>:\n<ul class=\"wp-block-list\">\n<li>Bottom 50% bear <strong>29%<\/strong><\/li>\n\n\n\n<li>Middle 30% account for <strong>30%<\/strong><\/li>\n\n\n\n<li>Top 20% shoulder the highest burden at <strong>41%<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>These findings contrast with earlier reports, such as <strong>Oxfam\u2019s 2023 Analysis,<\/strong> which claimed the<strong> poorest 50% contributed nearly two-thirds of total GST<\/strong> collections, while the richest 10% contributed only 3\u20134%.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How Is GST Intended to Work?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>GST is a <strong>consumption-based indirect tax<\/strong> and is designed for simplicity and broad-based collection.<\/li>\n\n\n\n<li><strong>Essential items<\/strong> (such as unbranded grains, fruits, vegetables) are<strong> largely exempted or taxed at lower rates<\/strong> to protect the poor, while <strong>non-essentials and luxury goods are taxed higher.<\/strong><\/li>\n\n\n\n<li>In theory, if the tax were truly progressive, higher-income groups would bear a significantly larger share of GST relative to their consumption.<\/li>\n\n\n\n<li>However, above findings indicate that the GST is only mildly progressive by international standards, as measured by various indices<strong> (Kakwani Index, Reynolds-Smolensky Index, etc.)<\/strong>, and its redistributive effect is positive yet limited.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Reason for Such Trend<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>High Necessities Spending:<\/strong> Lower-income groups spend a large share of their total income on goods\/services that attract GST, even though some essentials are tax-exempt.<\/li>\n\n\n\n<li><strong>Limited Progressivity: <\/strong>While high-income households purchase more luxury and highly-taxed items, their share of GST paid does not rise proportionately with income.<\/li>\n\n\n\n<li><strong>Tax Structure:<\/strong> GST exemptions on basic goods help, but not enough to prevent the burden from falling similarly on the bottom and middle income groups.<\/li>\n\n\n\n<li><strong>Indirect Nature of GST:<\/strong> GST taxes expenditure, not ability to pay, making it inherently less progressive than direct taxes.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Implications<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Equity Concerns: <\/strong>GST\u2019s mildly progressive nature means that it doesn\u2019t substantially redistribute income or address inequality.<\/li>\n\n\n\n<li><strong>Potential Regressivity:<\/strong> For the poorest, GST can be regressive as they spend most of their income on consumption.<\/li>\n\n\n\n<li><strong>Social Justice: <\/strong>Persistent high GST burden on the bottom half may push for greater welfare spending or targeted subsidies elsewhere.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead &amp; Needed Reforms<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Enhance Progressivity:<\/strong> Reduce GST rates for goods\/services critical to lower-income groups beyond the current list of essentials.<\/li>\n\n\n\n<li><strong>Strengthen Exemption Framework: <\/strong>Periodically revise the basket of tax-exempt\/low-tax essentials based on evolving household consumption data.<\/li>\n\n\n\n<li><strong>Improve Data and Targeting:<\/strong> Adopt regular impact studies to track GST\u2019s distributional consequences.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>What is GST?<\/strong><br>&#8211; <strong>Definition:<\/strong> GST is a comprehensive, destination-based indirect tax levied on the supply of goods and services, subsuming multiple indirect taxes (such as VAT, excise, service tax).<br>&#8211; <strong>Rate Structure<\/strong>: Multiple rates (0%, 5%, 12%, 18%, 28%) depending on the goods\/services, plus some special rates and cess for sin\/luxury goods.<br>1. Some items like<strong> petroleum, alcohol, and electricity <\/strong>remain outside the GST ambit, leading to calls for further inclusion.<br>&#8211; <strong>Input Tax Credit: <\/strong>Allows seamless credit for taxes paid at previous stages, reducing cascading tax effects.<br>&#8211; <strong>GST Council: <\/strong>The GST Council, a federal body comprising the Union Finance Minister and State Finance Ministers, governs the structure, rates, and reforms of GST, ensuring cooperative federalism.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Source: IE<\/p>\n","protected":false},"excerpt":{"rendered":"<h3><strong>In Context<\/strong><\/h3>\n<li class=\"ms-5\">A recent study analysing India&#8217;s Goods and Services Tax (GST) regime using the 2022\u201323 Household Consumption Expenditure Survey (HCES) has revealed that the bottom 50% of consumers bear the same GST burden as the middle 30%, raising important questions about the tax system&#8217;s progressivity and equity.<\/li>\n<p><\/p>\n<h3><strong>How Is GST Intended to Work?<\/strong><\/h3>\n<li class=\"ms-5\">GST is a consumption-based indirect tax and is designed for simplicity and broad-based collection.<\/li>\n<li class=\"ms-5\">In theory, if the tax were truly progressive, higher-income groups would bear a significantly larger share of GST relative to their consumption.<\/li>\n<li class=\"ms-5\">However, above findings indicate that the GST is only mildly progressive by international standards, as measured by various indices (Kakwani Index, Reynolds-Smolensky Index, etc.), and its redistributive effect is positive yet limited.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/24-07-2025\/gst-burden-indian-households-study\" class=\"btn btn-primary btn-sm float-end\">Read\u00a0More<\/a><\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-49111","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/49111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=49111"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/49111\/revisions"}],"predecessor-version":[{"id":49121,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/49111\/revisions\/49121"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=49111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=49111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=49111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}