The ideal minimal and moderate rate structure will have to wait and multiple rate slabs appear to be the most likely choice for now as the GST council holds its three-day meeting from tomorrow, to decide on the issue.
With prime minister Narendra Modi pitching for implementation of the integrated goods and services tax (GST) across the country from April 1, 2017, it is natural that the Union finance ministry is trying its level best to put all the pieces together within the available time to achieve this goal.
The three-day GST council meeting beginning tomorrow, therefore, is critical as the idea is to fix two most important issues—formulation of a workable tax rate structure and also the compensation formula in case there is a revenue loss to any state due the GST.
Once this is done, the Union government will be able to introduce the central GST (CGST) and integrated GST (IGST) legislations in the month-long Winter Session of Parliament starting November 16.
Though the panel headed by Chief Economic Advisor Arvind Subramanian had suggested 17-18% as the standard rate for bulk of goods and services, and a 12% rate for low rate goods while 40% for demerit ones like luxury car, soft drinks, pan masala and tobacco—it seems that a consensus might be reached to begin with four or five slabs, of, say, 10%, 12%, 16% and 25% etc.
This may not be an ideal case as multiple rates are against the GST principle, but considering the fact that the choice may be between having a GST with these kind of rates or no GST at all, there may be a decision to start with this framework with the intention of fine-tuning it to the minimal and moderate rates.
Similarly, in case of compensation formula also, though several options are already on the table, the GST council must zero in on a workable structure fast, but should also ensure that the whole exercise doesn’t become a window of controversy—compensation has to be the last resort in the GST scheme of things.
But, both the Union government and also the states must be averse to hurrying through the GST to just meet the April 1, 2017 deadline, if they want to avoid major problems going ahead.