Goods and Services Tax – GST – Dated:- 27-10-2016 – From the facebook page of Mr. Arun Jaitley Two Important Issues before the GST Council The GST Council comprising of the Finance Ministers' of the Union and the State Governments has had three detailed meetings spread over several days. Two more meetings are proposed post Deepawali. The meetings have witnessed an intense debate on several issues, which has been an excellent example of deliberative democracy . Opposing viewpoints have ended up in convergence and so far all issues have been decided by a consensus. Some critical issues are pending before the GST Council for a final decision. Comments have been made in the public space with regard to two of these issues. Even though the final decision with regard to these two issues is yet to be taken by the GST Council, the rationale behind the proposals placed before the Council needs to be explained. (1) The Multi Rate Structure It has been proposed to the Council that there shoul
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he reality is that a multiple tax rate in India is inevitable for several reasons. Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive. Air conditioners and hawai chappals cannot be taxed at the same rate. Total tax eventually collected has to be revenue neutral. The Government should not lose money necessary for expenditure nor make a windfall gain. The tax on some products in a narrow slab regime will substantially increase. This would be highly inflationary. A commodity being taxed by the Centre and the State at 11% at present will be taxed at 12%. If it's taxation is suddenly raised on standard rate of 18%, it would disrupt the market and would be highly inflationary. There are presently several items mainly used by the more affluent which are currently taxed at a VAT of 14.5% and an excise of 12.5%. If the cascading effect of these taxes and octroi is added, then range of taxation of these products is betwee
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are all resolved. Hopefully with higher compliances and more revenue after the initial period, the GST Council would continue to have a look at the expenditure requirement and the tax likely to be collected and rationalise the tax rates and the structures in future. It may be noted that some developed countries which do not have any section of the population below the poverty levels and where economic standards are high, have fewer tax slabs but many of them have 3-4 slabs. I am annexing to this blog an illustrative list of some of the countries which fall in this category. (2) Compensation Payable Through Cess The GST will result in the consuming States increasing their revenues from the very first year onwards. The GST Council has fixed a 14% revenue growth as a uniform, secular growth rate for all States. The revenue loss, if any, of a State has to be calculated on this basis. Some producing States may lose marginally in the initial years. The Constitutional amendment guarantees a f
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o out of every 100 rupees collected in GST only 29% remains with the centre. The tax impact of this levy would be exorbitantly high and almost unbearable. The alternative proposal is to have a cess account and continue same existing levies as cess for a period of five years before subsuming them as tax. This would include clean energy cess and cesses on luxury items and tobacco products, which in any case, presently also pay levy higher than 26%. This would ensure no additional burden on the tax payer and yet be able to compensate the losing States. It may further be noticed that benefitting States are not compensating the losing states. The Centre, as a non-beneficiary, has to compensate and the proposal for continuing existing cesses for five years to the extent of compensation required is the more benign way of compensating the losing States without burdening the tax payer. These are only at the proposal stage and would be discussed at length in the meeting of the GST Council early
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