The bottom half of India’s consumers face the same Goods and Services Tax (GST) burden as the middle 30 per cent, according to a new study that analyses the impact of the indirect tax regime using the Statistics Ministry’s Household Consumption Expenditure Survey (HCES) for 2022-23.The study found that the bottom 50 per cent of Indian consumers living in rural areas bore 31 per cent of the GST burden — the same as the middle 30 per cent of rural consumers. The figures were similar for urban areas: the bottom 50 per cent faced 29 per cent of the burden, while the middle 30 per cent bore 30 per cent. In both cases, the top 20 per cent of consumers had to bear the bulk of the tax burden: 37 per cent in rural areas and 41 per cent in urban areas.As per the 2022-23 HCES, the bottom 5 per cent of consumers in rural areas had an average Monthly Per Capita Expenditure (MPCE) of Rs 1,373, while those in urban areas spent Rs 2,001. Among the top 5 per cent, rural consumers had an MPCE of Rs 10,501 while urban consumers spent Rs 20,824, according to the survey. The tax burden is the share of the GST estimated to have been paid by households.GST ‘moderately progressive’The findings of the paper, titled ‘Distributional Impact of Indian GST based on the NSSO’s Household Consumption Expenditure Survey of 2022-23’ authored by Sacchidananda Mukherjee, a professor at the New Delhi-based think-tank National Institute of Public Finance and Policy (NIPFP), are in contrast with a 2023 Oxfam report which said the poorest 50 per cent of Indians contribute nearly two-thirds of total GST collections, with the richest 10 per cent contribute only 3-4 per cent. On the whole, Mukherjee’s analysis, released earlier this month, suggested the GST had positive redistributive effects as post-tax consumption inequality declined and is “moderately progressive”.A tax system is said to be progressive when higher-income individuals pay a higher rate of tax. Mukherjee told The Indian Express that recent literature shows “most countries following multiple tax rates in GST or VAT system — the European Union follows a multiple tax rate system, for instance — are getting a similar kind of result: progressive, but moderately so.”The paper’s findings come amid talk of a major overhaul of the GST rate structure, with The Indian Express reporting earlier this month that Home Minister Amit Shah will begin talks with stakeholders to build consensus and resolve contentious issues. One of the proposals on the table is the removal of the 12 per cent GST rate by shifting some items to the 5 per cent slab and others to the 18 per cent list.What is the methodology behind the study on GST impactIn his paper, Mukherjee allocated 390 items from the 2022-23 HCES — after excluding seven items that don’t attract GST, such as second-hand books — into the various GST buckets. However, assigning a specific tax rate to each item was difficult as rates also depend on marketing or physical features (packaged or labelled), as well as the presence of certain specific rates — for instance, a 6 per cent rate is charged on brick kilns under composition scheme, without input tax credit. These are in addition to the major GST rates of nil, 5 per cent, 12 per cent, 18 per cent, and 28 per cent.Story continues below this adAs such, the 390 items were distributed across nine broad buckets: exempt, exempt to 5 per cent, 5 per cent, 5-12 per cent, 12 per cent, 12-18 per cent, 18 per cent, 28 per cent, and more than 28 per cent. Items that are not under the GST, such as alcohol and fuel, were part of a separate ‘Out of GST’ category.This categorisation led to 154 of the 390 items falling in the ‘exempt’ and ‘exempt to 5 per cent’ buckets, with 105 of them being food items, while most items attracting GST rates of 12 per cent or more were non-food. In spending terms, 45 per cent of average MPCE was on items in the ‘exempt’ and ‘exempt to 5 per cent’ buckets in both rural and urban areas. Meanwhile, 9 per cent of rural MPCE and 10 per cent of urban MPCE was on items in the ‘Out of GST’ category.After making adjustments to the MPCE given in the 2022-23 HCES for each fractile class — bottom 5 per cent, bottom 5-10 per cent, and so on until the top 5 per cent — the paper found that the bottom 5 per cent of consumers in rural areas spent more than 47 per cent of their MPCE on items either exempt from GST or attracting a rate of up to 5 per cent. This share fell before rising for the top two categories of consumers, namely those in the 90-95 per cent and 95-100 per cent fractiles, suggesting increased consumption of more expensive and processed food items at higher consumption levels. The paper warned that reducing the number of items exempt from GST may increase the tax burden for least-consuming people in rural areas.Careful redesign neededMukherjee also warned that increasing the tax rate on items in the 5-12 per cent bucket may increase the tax burden on those in lower consumption classes in both rural and urban areas since the share of MPCE spent on these items was higher for consumers in lower fractile classes. Meanwhile, changes in expenditure share of items in the 12-18 per cent bucket across consumption classes was more complex, with the paper saying that increasing the GST rates on these items “may not be regressive if designed carefully”.Story continues below this adThe issue of rationalisation of GST rates has been pending for several years, with a Group of Ministers for the same set up way back in September 2021. However, talk of the need to make changes to GST rates has risen recently due to the subdued performance of urban consumption in particular. Earlier this month, Confederation of Indian Industry President Rajiv Memani called for a reduction in tax rates on certain goods, especially those that are purchased by people in lower-income categories. This, Memani argued, would hopefully boost consumption.