India: Selected Issues

IMF Staff Country Reports, August 6, 2018

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Dual rate structure with a low standard rate and an additional higher rate on select items can be progressive and preserve revenue neutrality.
Streamlining exemptions would further contribute to progressivity and reduce compliance and administrative costs.
Simplifying the GST is possible without imposing a significantly higher burden on the poor.
Streamlined rates would also weaken incentives to lobby for lower rates.

There are likely significant benefits from lower costs of compliance and administration associated with GST simplification.
The literature on value added tax (VAT) compliance costs shows broad variation across countries; however, there is a consensus that compliance costs are regressive and administrative costs increase with complexity.
While evidence on India is nascent and remains to be assessed as experience with the GST is gained, anecdotal evidence from large firms indicates sizable increases in costs, which may be even more burdensome for smaller firms.

International Monetary Fund. Asia and Pacific Dept "India: Selected Issues", IMF Staff Country Reports 2018, 255 (2018).