GST - 'Four Rates Fine' says Arvind Panagariya; 'Disastrous' says Chidambaram
NITI Ayog Vice Chairman Arvind Panagariya says that the structure of having four slabs of 6, 12, 18, and 26 per cent, as proposed by the Centre, would see to it that there was a certain level of predictability to the revenue calculations, along with keeping the inflationary implications in check.
He adds:
+ If you do a single rate (16 or 18 per cent) then some of rates you will have to bring very far off. Obviously, then there will be inflation on those particular commodities (with lower rates of tax). There are products which have 3 per cent rate of tax. Those if you take all the way to 16 or 18 per cent then there will be inflation implications.
+ The criticism of the multiple rate structure is "overstated".
+ The big gains from GST will come from having a single tax rate on a single product across geographies. There is no tax theory which suggests one tax rate is better than two, or two are better than four.
+ If there was another tax instead of the cess, the tax rate would have been much higher since 42 per cent of the amount would go to states. Also since the cess is to be temporary, it can be dropped after five years. In case there was a higher tax rate, there may be no inclination among the states to remove it.
+ While the government's target to roll out the GST regime from April 1, 2017 was "a little bit of a race", it was "certainly within the realm of possibility".
Chidambaram sang a different tune. He says,
+ There cannot be multiple tax slabs in Goods and Services Tax (GST) and it is nothing more than VAT in "new shape"
+ A well designed GST is expected to have a standard rate, a plus (standard) rate and a minus (standard) rate. But it cannot have different rates across the board.
+ We can't have 20 rates. This will be disastrous and that cannot be GST. It will be fooling the country. That's simply existing VAT rates in a new shape.
+ The transition to GST was good for the overall economy in the long run even though the impact was expected to be inflationary in the first year. Taxes are expected to go up mostly on services. But, I think that over a period of time, it is expected to level off.