Over 7 in 10 citizens oppose increase in GST rate structure from 5% to 7-8% and from 18% to 20%

June 17, 2022, New Delhi: The escalating geopolitical tension arising due to the ongoing invasion of Russia on Ukraine is already having ramifications in the form of price rises across commodities. Due to the surge in global crude oil prices, Indian oil marketing companies (OMCs) have raised prices by 26% since March, which in turn, is causing a rapid surge in prices of vegetables, fruits, edible oils, and even packaged food products. Prices of wheat and grains, fertilisers and metals have also been particularly hit hard. Economic experts predict a further increase in goods and services if prices of petroleum and fuels continue to rise considerably. The rising inflation has hit the consumers hard, in turn, resulting in a decrease in their discretionary spending with some households having no option but to even cut essential spending.

Amidst these developments, the Goods and Services Tax (GST) council has nominated Fitment Committee, headed by Karnataka Chief Minister Basavaraj Bommai, to once again work on evaluating an increase in GST rates. The committee had earlier proposed rate rationalisation to consider raising GST slabs of 5% to 7% and 18% to 20% in November 2021. The current GST rate comprises a 4-tier tax structure: a zero rate or nil rate that exempts certain products from GST; a lower rate of 5%; a standard rate of 12 and 18%; and a higher rate of 28%. These GST rates were organised in such a way that all the necessary services and some food items are placed in the lowest bracket, and the other luxury goods and services, and de-merit goods are placed in the highest bracket.

Meanwhile, the GST Council comprising a group of ministers, led by Meghalaya Chief Minister Conrad Sangma, has agreed to recommend hiking the GST rate on casino, racecourses and online gaming services to 28%, which is, however, subject to the final approval of the GST council. At present, casinos, racecourses and online gaming firms are paying 18% GST. Also, the GST council is reportedly considering a 28% tax on cryptocurrencies. If the council passes the taxation will be in addition to the 30% income tax on earnings from crypto-asset transactions. The Finance Minister of India Nirmala Sitharaman during the Union Budget 2022 had proposed in the Parliament to provide a specific tax regime on any income from the transfer of any virtual digital asset at the rate of 30%. Also, to capture transaction details of such assets, the minister proposed to deduct 1% TDC on transactions in virtual digital assets above a certain monetary threshold. The group of ministers may as well levy a 28% on services of casinos, horse racing and online gaming, which is currently attracting 18% GST.

Many citizens have regularly raised the issue of 18% GST slab being too high a tax rate for household goods like hair oil, toothpaste, shampoo, TVs, along with services, which are currently under the 18% GST rate. According to a survey conducted by LocalCircles in July 2021, 2 out of 3 consumers in India wanted changes to the GST rate structure. Of whom, 55% of citizens were in favour of merging GST rates of 12% and 18% into a single 15%. Similar changes in the GST slab for certain products and services have been sought by various trade organisations. Per media reports, citing government sources, the Fitment Committee has been meeting over various issues and will soon submit the review report to the Group of Ministers on rate rationalisation, as per the final discussion.

LocalCircles has conducted an extensive national survey to understand citizen pulse on the issue of raising GST slabs of 5% to 7% and 18% to 20% by the Fitment Committee and on the GST rates on cryptocurrency, online gaming, gambling, etc. The survey received over 34,000 responses from citizens residing in 319 districts of India. 67% respondents were men while 33% respondents were women. 45% respondents were from tier 1, 29% from tier 2 and 26% respondents were from tier 3, 4 and rural districts.

71% citizens against Government increasing GST rates from 5% to 7-8% and from 18% to 20%

The first question in the survey asked citizens “If the GST Council were to increase GST rates from 5% to 7-8% and from 18% to 20%, would you support such an increase in GST rates?” In response, only 20% said “Yes” and 9% did not have an opinion. However, 71% of citizens surveyed said “No” they don’t, indicating that majority of Indian citizens are against increasing GST rates from 5% to 7-8% and from 18% to 20%. This question in the survey received 9,680 responses.

Given the high inflation and 7 in 10 households in the country facing a squeeze, any change in the 5% rate structure to 7-8% will have a direct impact on household budgets, and hence the majority of household consumers are explicitly against such an increase. Similarly, in the case of services according to people, the 18% GST rate leads to high evasion where most small and even mid-sized contractors do not issue a GST invoice and take payments in cash or bank accounts of family members. By increasing tax on services from 18% to 20%, there is a high risk that most people will likely avoid GST invoices largely only leaving businesses paying the higher rate of 20%.

79% citizens want GST rate on online gaming, casinos and horse racing to be 28% or higher

The GST Council comprising a group of ministers, led by Meghalaya Chief Minister Conrad Sangma, has agreed to recommend hiking the GST rate on casino, racecourse and online gaming services to 28%, which is, however, subject to the final approval of the GST council. At present, casinos, racecourse and online gaming are paying 18% GST.

The following question in the survey asked citizens, “The Group of Ministers from states have proposed a GST rate of 28% for online gaming, casinos and horse racing. What according to you should be the GST rate for such services?” In response, the majority, 45% of citizen said, “28%”, 9% said “18%”, 1% said “12%”, 4% said “5%”, 7% said “40%”, and 27% said “over 50%”. Only 1% said they “Should be exempt from GST”. 6% did not have an opinion. On an aggregate basis, 79% of citizens want GST rate on online gaming, casinos and horse racing to be 28% or higher. This question in the survey received 12,097 responses.

60% citizens want GST rate on cryptocurrencies to be 28% or higher

Also, the GST council is reportedly considering a 28% tax on cryptocurrencies. If the council passes the taxation will be in addition to the 30% income tax on earnings from crypto-asset transactions. The Finance Minister of India Nirmala Sitharaman during the Union Budget 2022 had proposed in the Parliament to provide a specific tax regime on any income from the transfer of any virtual digital asset at the rate of 30%. Also, to capture transaction details of such assets, the minister proposed to deduct 1% TDC on transactions in virtual digital assets above a certain monetary threshold.

The following question in the survey asked citizens, “What according to you should be the GST rate for cryptocurrency transactions?” In response, 34% said “28%”, 4% said “18%”, 2% said “12%”, 5% said “5%”, 7% said “40%”, 19% said “over 50%”. Only 5% of citizens said it “Should be exempt from GST”. 22% did not have an opinion. On an aggregate basis, 60% of citizens want GST rate on cryptocurrencies to be 28% or higher”. This question received 12,330 responses.

Considering the rise in fuel prices and consequent inflation in India, the decision to increase the GST rate structure from 5% to 7-8% and from 18% to 20% needs reconsideration. This is confirmed by the survey with 71% of citizens are explicitly against the Government increasing GST rates from 5% to 7-8% and from 18% to 20%. The majority of households are instead seeking relief in GST rates given the high levels of inflation with 70% reporting an over 10% increase in monthly costs in May. On the 18% rate structure, if the rate is increased to 20%, it will only worsen the squeeze in household budgets as shampoo, toothpaste and many other products in this category are used by the middle class. On the service front, the 18% tax rate itself leads to high amounts of evasion at the small business and household level and the increase will only drive evasion.

On the issue of GST for casinos, online gaming, gambling and horse racing, 79% of citizens favor the Group of Minister’s move to increase its GST rate to be 28% or higher. 60% of citizens also want the GST rate on cryptocurrencies to be 28% or higher.

LocalCircles will escalate the findings of the survey with the Government and the GST Council to ensure public feedback is considered before making changes to the GST rate structure.

Survey Demographics

The survey received over 34,000 responses from citizens residing in 319 districts of India. 67% respondents were men while 33% respondents were women. 45% respondents were from tier 1, 29% from tier 2 and 26% respondents were from tier 3, 4 and rural districts. The survey was conducted via LocalCircles platform and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.