With several experts criticising the proposed multi-rate structure of the Goods and Services Tax (GST), Niti Aayog Vice Chairman Arvind Panagariya said on Monday that the structure of having four slabs of 6, 12, 18, and 26 per cent, as proposed by the Centre last week, would see to it that there was a certain level of predictability to the revenue calculations, along with keeping the inflationary implications in check.
“If you do a single rate (16 or 18 per cent) then some of rates you will have to bring very far off. Obviously, then there will be inflation on those particular commodities (with lower rates of tax). There are products which have 3 per cent rate of tax. Those if you take all the way to 16 or 18 per cent then there will be inflation implications,” Panagariya told reporters here, adding that the criticism being faced by the multiple rate structure was “overstated”.
According to the finance ministry’s proposal, of the four rates, there will be two standard rates of 12 per cent and 18 per cent. Necessary goods such as food items would attract a tax rate of 6 per cent, while consumer durables would be taxed at 26 per cent.
“The big gains from GST will come from having a single tax rate on a single product across geographies. There is no tax theory which suggests one tax rate is better than two, or two are better than four,” he said.
Furthermore, in the GST Council meeting held on October 19, several states had disputed the finance ministry’s proposal to levy an additional cess on demerit goods such as certain ultra-luxury items and sin goods like tobacco, pan-masala, aerated beverages, etc. This cess would be utilised for the Rs 50,000 crore pool, which would be created to compensate the states for revenue loss arising out of implementation of GST.
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He suggested that four-rate structure will ensure that taxes on bulk of the commodities remain at the same level under the GST regime and have minimal impact on revenue.
Panagariya said that if there was another tax instead of the cess, the tax rate would have been much higher since 42 per cent of the amount would go to states. “Also since the cess is to be temporary, it can be dropped after five years. In case there was a higher tax rate, there may be no inclination among the states to remove it,” he added.
The Niti Aayog Vice Chairman also said that while the government’s target to roll out the GST regime from April 1, 2017 was “a little bit of a race”, it was “certainly within the realm of possibility”.