Former finance secretary Vijay Kelkar has backed a single rate for the Goods & Services Tax (GST) saying it would help the authorities administer it better before considering multiple rates.
The GST council, which has representatives of states and the Centre, has finalised a four-tier GST rate structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess. “Our first objective should be to establish easy objectives for state capacity , and fully succeed in building this state capacity. Only after this is done should we try for a more complex problem.
As an example, it is better to first build a single-rate GST with a low GST rate, achieve full mastery of this, and only then consider more complex possibilities such as high rates, multiple rates etc,” said Kelkar, who is the president of the Indian Statistical Institute and chairman of the National Institute of Public Finance & Policy. “There are the consequences for GDP of the political economy of lobbying for tax changes, which arise when we do not have simple, single-rate, tax systems. .
For example, if there was only one customs duty (e.g. 5 per cent), this would be much better than having different rates.Eighty percent of the countries that have introduced a GST after 1995 have opted for a single-rate GST,” he said while delivering the CD Deshmukh memorial lecture on Friday evening.
A panel set up by the 13th Finance Commission under Kelkar had talked of a single GST rate of 12 per cent. It had said a substantially lower, uniform, and combined single rate of 12 per cent on all goods and services will reduce the economic distortion and the incentive to evade.
Source : http://economictimes.indiatimes.com/articleshow/56848099.cms