Why it is critical to start with ‘good’ GST, then transition to an ‘ideal/best’ one

The goods & services tax (GST) is currently levied/imposed in about 160 countries, with the average GST rate of around 16%. There are variations from this average charge. To illustrate, GST rates range from 1.5% in Aruba, 6% in Malaysia, 7% in Singapore to 25% in Sweden and 27% in Hungary.
It is estimated that the average rate of indirect tax on any product in India is bound to be around 27% (excise plus VAT plus in-build input taxes).

To begin with, India, like Australia and New Zealand, also wanted to adopt a single unified GST rate. However, due to our federal structure, where the Centre currently levies multiple excise and service tax rates (with or without abatements) and states levy a plethora of taxes like VAT, entry tax, entertainment tax, purchase tax, etc, at different rates, achieving the target of a unified tax rate on all goods and services is extremely challenging.

The compulsion of multiplicity of rates under GST was also explained by the finance minister in his response to the GST debate in the Lok Sabha by stating that India cannot afford to have the same rate on ‘hawai chappal’, ‘baby food’ and ‘BMW cars’. He further added that while computing GST rates, one needs to keep in mind not only the use of a particular product, but also the people and their financial background using the said product.

Also, where a single GST rate (say, in the range of 16-18%) is applied to all goods and services, the same could result in steep inflation on products and services which currently attract a lower rate of tax, say, within the range of 5-7%.

Article Source: “http://www.financialexpress.com/opinion/why-it-is-critical-to-start-with-good-gst-then-transition-to-an-idealbest-one/616828/”

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