GST structure not best but policymaking about second best choices: NITI Aayog VC designate

Niti Aayog vice-chairman designate Rajiv Kumar on Tuesday said the structure of the Goods and Services Tax (GST) was not the “first best” but policymaking is the art of choosing the second best.

By: ENS Economic Bureau | News Delhi | Updated: August 9, 2017 6:44:09 am
niti aayog chairman, rajiv kumar, economist rajiv kumar, who is rajiv kumar, niti aayog chief, indian express news Kumar noted that the implementation of GST has brought down overall tax burden on the economy. (File Photo)

Niti Aayog vice-chairman designate Rajiv Kumar on Tuesday said the structure of the Goods and Services Tax (GST) was not the “first best” but policymaking is the art of choosing the second best. “…I have been in policymaking for a long time and it is the art of the second best … because you often don’t get the first best,” he said at an event organised by Pahle India Foundation. Kumar is the founding director of the Foundation. He observed that there has often been a debate over equity and efficiency aspects of the GST. While the efficiency argument demands that there should be a single rate for Goods and Services Tax, the equity argument favours not taxing or having lower tax on mass consumption items, he said.

Kumar noted that the implementation of GST has brought down overall tax burden on the economy. “Overall tax burden on the economy has come down after the implementation of the Goods and Services Tax (GST),” Kumar said. Launched on July 1, GST has replaced a number of central and state taxes into a harmonised tax system.  Kumar will replace incumbent Arvind Panagariya who is leaving the government think tank on August 31.
Speaking at the same event, noted tax expert Satya Poddar said the Goods and Services Tax has succeeded in harmonising and digitising the tax system but much needs to be done  to make its implementation simpler. He said cross matching of invoices on the GST platform was a lot more tougher than desired, putting a high compliance burden especially on small and medium businesses.

Alluding to the complexities of the GST, Poddar said the new regime does not have 5-6 tax rates but a total of “almost 1,100 tax rates”. Speaking on the defects in the composition scheme, he said the scheme is available only within a state and only for goods. A businessman having business in two states or those selling services cannot avail the composition scheme provided under the GST regime. Poddar said the political intent behind GST is genuine but the bureaucracy has “incorporated all the worst elements of the existing system.” He expressed hope that going forward these anomalies in the GST regime will be corrected and the system will be made simpler from taxpayer’s point of view.

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