Oct, 2023

Authors Sacchidananda Mukherjee

Details NIPFP Working Paper No. 403

•  Abstract
  We estimate GST rate-wise distributional impact of GST across different consumer groups in India for 2021-22. Multiple rate structure and fixation of GST rates based on product specification make it difficult to assign a specific GST rate (or estimation effective GST rate) across items (or group of items) of consumption. In absence of recent consumer expenditure survey of the National Sample Survey Organisation (NSSO), we use CMIE’s Consumer Pyramids Household Survey (CPHS) for 2021-22. We distribute all India average monthly per capita consumption expenditure (MPCE) on 123 items (or group of items) across 9 tax categories [viz., exempted, very low (exempt to 5%), low (5%), lower middle (5 to 12%), middle (12 to 18%), upper middle (18%), upper (28%), high (>28%) and ‘Out of GST’] by regions (i.e., rural and urban) and estimate the share of each tax category in aggregate average MPCE across fractile classes of MPCE. Given the tax category, as the share of consumption expenditure increases (or decreases) with increasing size of the consumption basket (or as represented by fractile class of MPCE), tax burden will increase (or decrease).

  We find that on average 24.5 per cent of average MPCE is exempted from GST. When we add the shares of very low tax and low tax categories with exempt category for all regions, we find that 57.6 per cent of average MPCE (or average size of the consumption basket) is either exempted or face lower tax rate (upto 5%) in the GST regime. On average 14.5 per cent of average MPCE constitutes consumption of ‘Out-of-GST’ items. Therefore, only 28 per cent of average MPCE of consumers face GST rates above 5 per cent. Out of 28 per cent of average MPCE, on average 14 per cent attracts GST rate 18 per cent and the rest is distributed across lower middle, middle and high GST rate categories.

  Consumer groups with higher average MPCE benefits the most from the tax (GST) exemptions – both in rural and urban areas. Very low and low tax rate benefit the consumers with lower average MPCE. Except for fractile class greater than P95 in urban areas, consumption of items under lower middle tax category shows proportionate tax burden across all fractile classes of MPCE. It is lower strata of consumer groups (having relatively lower average MPCE) who bear the burden of tax on items falling under middle tax category the most. Both in rural and urban areas, lower strata of consumers (upto fractile class P30) face progressive tax burden on consumption of items falling under middle GST rate. Items falling under high tax rate category are intoxicants (cigarettes, bidi and other tobacco products) and in addition to the highest GST rate these items attract GST compensation cess. Distributional effects of tax burden of intoxicants differ across consumer groups and across regions. Consumption of alcoholic beverages, liquor at restaurants, petrol & CNG (compressed natural gas), diesel, and electricity attract taxes other than GST. There is progressivity of tax burden for this category across fractile classes in all regions.

  Key Words: distributional impacts, tax incidence, progressive, regressive, Goods and Services Tax (GST), Value Added Tax (VAT), rate restructuring, India.

  JEL Codes: H22, D30, E21, Z18