The GST Council, a constitutional body made up of finance ministers of states and Centre, reduced taxes on almost 30 goods and services last Saturday. The reductions show two clear trends: a number of goods and services are being pushed into lower category of tax slabs and the peak rate of 28% is on its way to being rendered almost irrelevant. The changes are welcome and are an important step in reducing the indirect tax burden on people. Once the latest reductions take effect, it would mean the Council has reduced the rates on nearly 360 items since GST was rolled out.

Another positive development is that work is on to reduce the compliance burden of filing tax returns, especially for smaller businesses, and the results are likely to be announced in the next meeting. Even if the current reductions and other improvements have been prompted by approaching general election, the GST Council nevertheless deserves praise for being consistent in its attempt over 18 months to iron out flaws in GST architecture. It’s extremely unlikely (or at least, so one hopes) that the tax reductions will be reversed, once elections are done. Lower taxes, in fact, will help the economy improve – thereby boosting revenues in the long run. GST Council should proceed on this path to compress the number of tax slabs and make the system simpler.

Even as the council was debating a reduction in tax rates NK Singh, chairman of the 15th Finance Commission, observed that fiscal slippages could imperil macroeconomic stability. His caution comes in the backdrop of a plethora of unforeseen expenditures through farm loan waivers undertaken by states. Before going in for more wasteful expenditures in the runup to 2019, India’s experience during the “taper tantrum” phase in 2013 should remind governments that their balance sheets have a significant impact on the country’s economic well-being.