Bibek Debroy bats for single-rate GST, ‘exemption-less’ tax regime | The Financial Express

Bibek Debroy bats for single-rate GST, ‘exemption-less’ tax regime

Debroy’s comments come at a time when the GST Council has ceased talking of a single-rate GST system

Bibek Debroy bats for single-rate GST, ‘exemption-less’ tax regime
One argument against fewer GST rates is that such a system will be regressive in nature, because the mass consumption items and luxury goods will then be taxed at par. (IE)

India should have a single goods and services tax (GST) rate and “exemption-less’ regimes for both direct and indirect taxes, Prime Minister’s Economic Advisory Council chairman Bibek Debroy said on Monday.

The tax collections of the Centre and states combined are just 15% of the gross domestic product (GDP), while the demand for government spending on public infrastructure, education, healthcare and defence is around 23% of GDP, he said.

Debroy’s comments come at a time when the GST Council has ceased talking of a single-rate GST system, and the general refrain in policy circles is to settle for two-to-three slabs GST structure, after an ongoing review.

Also read: Sugar exports of 6 mt allowed : Lower quota in view of high domestic prices, review later

Also, neither the Centre nor the states are keen on including the petroleum products, the key exempted sector, in the GST chain due to huge revenue implications and the reluctance of both to forego the autonomy to fix the rates. “On GST, it is my submission (that) there should be a single rate. I don’t think we will ever get it,” Debroy said, speaking at an event here.

One argument against fewer GST rates is that such a system will be regressive in nature, because the mass consumption items and luxury goods will then be taxed at par.

Debroy, however, said that if the differential tax rates for products of elitist nature and those of mass consumption are done away with, it would lessen litigation. Even though the main GST slabs are four — three standard rates (5%, 12%, 18%) and one demerit rate (28%) — there are three more rates apart from the ‘zero’ rate. These are two special rates for diamonds and semi-precious stones (0.25%) and gems and jewellery (3%) and another rate (0.1%) for supply for goods to merchant exporters. The clutch of demerit and luxury goods in the 28% bracket also attracts cesses, the proceeds of which go into a separate fund meant to compensate states for revenue shortfall and repayment of compensation-related loans.

“As a polity, we need to recognise that the GST really should be the same regardless of the product. If progressivity is to be introduced, it is best done by direct taxes, not GST, or indirect taxes,” Debroy said, adding that these were his personal views.

Also read: Borrowing is an intergenerational burden, says FM

Also read: Borrowing is an intergenerational burden, says FMThe estimate of GST revenue neutral rate (RNR) made before the GST roll-out in July 2017 was 15-15.5%, but the average GST rate at present is around 11.5%. “We must be willing to pay tax or we must be willing to settle for reduced delivery of public goods and services,” he said, adding that the revenue foregone because of exemptions by the government is 5-5.5% of GDP.

While tax evasion is illegal, tax avoidance, by using exemption clauses to reduce tax burden, is legitimate. “Do we need these tax exemptions? The more the tax exemptions, the more complicated the (tax structure) becomes. Why can’t we have a simple tax structure devoid of all exemptions?,”he asked. “We must at some point agree we will move to a completely exemption-less system,” Debroy said.

The artificial difference between corporate taxes and personal income taxes should be removed, he added. “A lot of unincorporated business pays taxes under personal income taxes. This (removing difference) will also reduce administrative compliance,” he said.

As reported by FE earlier, with inflation likely to remain elevated for a longer period and key state elections due in 2023, the Narendra Modi 2.0 government may choose not to restructure GST slabs before it demits office in May 2024.

Even though the group of ministers on rates rationalisation headed by Karnataka chief minister Basavaraj Bommai was required to submit a report by end-September on the tax slab rejig, its proceedings have slowed.

After state assemblies elections in Himachal Pradesh in November this year and Gujarat in December, as many as nine states will go to polls in 2023 including Karnataka, Chattisgarh, Madhya Pradesh, Rajasthan and Telangana. Then the tempo for the 2024 general elections will pick up.

Inflation based on the consumer price index (CPI) rose to a five-month high of 7.14% in September, much above the Reserve Bank of India’s medium-term target of 2-6%.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 08-11-2022 at 02:30 IST