Outgoing Chief Economic Advisor Arvind Subramanian Wednesday said that removing the highest 28 per cent slab and a uniform rate of cess should be the first step for further simplification of the Goods and Services Tax (GST).
“I think the 28 per cent rate has to go. The cesses may have to remain, but there should be just one rate on cesses… Today, we have GST rates of zero, 3 per cent (for gold), 5 per cent, 12 per cent, 18 per cent and 28 per cent. We need to rationalise but I think at the first instance the 28 per cent should go,” Subramanian said at the Idea Exchange programme of The Indian Express.
Asked if cesses should be removed, he said, “I am saying that in an ideal system the 28 per cent rate has to go. The cesses may have to be there because we are going to have higher rates for some products but there shouldn’t be multiple rates even here. In my report, we had called for one 18 per cent rate and then 40 per cent rate. Cesses are a different way of implementing the 40 per cent rate.”
Citing “personal reasons” Subramanian last week had said that he would be leaving the Finance Ministry soon though he had not yet finalised the date of his last day in office. His announcement came eleven months before the end of his term in May 2019.
Speaking about the challenges the economy faces, Subramanian said that other than rising crude oil prices “stigmatised capitalism” is coming in the way of reforms.
“In terms of broader challenges that we have, stigmatised capitalism is coming in the way of a lot of reforms. The fact that it is getting very difficult to make decisions that involve bringing in the private sector… In this “mahaul” of the stigmatised capitalism, public sector officials are finding it difficult to take decisions because of the fear that, at some point, it will be questioned or investigated,” he said.
He also said that this would complicate a lot of things — privatisation, subsidy reforms and the whole twin balance sheet problem. He, however, said, “The IBC has partially broken the back of stigmatised capitalism. We have finally found the way to the exit, but the truth is that more and more exit decisions like this will only be possible via a judicial approach rather than a pure political and administrative approach.”
Presently, the GST regime has multiple tax slabs with five broad categories of zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent. There are two more GST rates of 0.25 per cent for rough diamonds, precious stones and 3 per cent for gold, silver. A Cess, ranging from 1 to 15 per cent, is levied on demerit and luxury goods over and above the highest rate of 28 per cent. The proceeds from the cess are intended to compensate state governments in the first five years of the GST regime for potential revenue losses after factoring in the projected revenue growth rate of 14 per cent with 2015-16 as the base year.
Subramanian had headed a committee and submitted the report on the “Revenue Neutral Rate and Structure of Rates for the GST”. In his report, he had suggested a preferred revenue neutral rate of 15 per cent, with two, four, and six per cent rate for precious metals, a low rate of 12 per cent for goods along with a standard rate of 16.9, 17.3 and 17.7 per cent and one 40 per cent rate for demerit goods.