The introduction of GST to replace the patchwork of state taxes is perhaps the Modi government’s greatest economic achievement. The new regime is expected to come into effect on July 1, 2017. Like everything in India, it’s complicated, with multiple bands and exceptions. It’s interesting that the 18 percent GST rate for telecom services is being challenged on the basis that it is a necessity. Imposing 18 percent tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers’ expenses.
A research article that will shortly be published in Information Technology and International Development got me thinking about Engel’s Law, which states that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. The article is by Aileen Aguero, Harsha de Silva and Juhee Kang. It’s not about food prices, per se, but about some extensions that allow the identification of necessary goods and luxuries. Their interesting finding is that voice telephony is a necessity in Asia (in the six countries covered by LIRNEasia’s teleuse@BOP research), while it is still a luxury in Latin America. How could the same thing be a luxury in one place and a necessity in another?