“Govt losing revenue as rate is below RNR”
Even as an overhaul of the Goods and Services Tax (GST) slabs, which is necessary to raise the weighted average rate to a “revenue-neutral” level looks unlikely before the 2024 general elections, Economic Advisory Council to the Prime Minister (EAC-PM) Chairman Bibek Debroy on Tuesday advocated a single-rate tax.
“The ideal GST is one that has a single rate, and it was meant to be revenue neutral rate (RNR). When it was introduced, there were some calculations by the ministry of finance then that said, in order to be revenue neutral, the average GST rate must be at least 17%… The average rate now is 11.4%. So because of GST, the government is losing revenue,” Debroy said.
It may be recalled that, a committee headed by then chief economic advisor Arvind Subramanian had in December 2015 computed the RNR at a given base at 15-15.5% for the Centre and states combined, but with a preference for the lower end of that range. “On structure, in line with growing international practice and with a view to facilitating compliance and administration, India should strive toward a one-rate structure as the medium-term goal,” the committee had said. The committee recommended a two-rate structure, for the tax to start with. “In order to ensure that the standard rate is kept close to the RNR, the maximum possible tax base should be taxed at the standard rate,” it said.
But the GST came into being in July 2017 with a structure of four main rates, and many exemptions, a special rate for gold, besides additional cesses on demerit items attracting higher duty. Also, a significant part of the transactions – most notably auto fuels – were exempted from GST, besides putting a turnover threshold for businesses to in the tax net. While the cess was originally meant to compensate the states for the initial five years of GST under a protected revenue mechanism, they continue to be levied, to finance a loans taken by the Centre to bridge the shortfall in the cess kitty. Also, since the launch of the GST, rates of a large number of items have got reduced, as the government sought to boost consumption, especially during the pandemic period.
While the GST receipts have in the initial years been much lower than expectations, certain buoyancy has been in evidence since FY23. Debroy noted that the public as well as members of the GST Council want the 28% tax rate (the highest slab) to come down, but added that, “no one wants the 0% and 3% tax rates (gold) to go up”.
“That way, we will never have a simplified GST,” he said at the ‘Special Session on Resilient and Self-Sufficient India’. “A lot of abuse” of the GST provisions was also taking place, he said without elaborating.
Onn direct taxes, the EAC-PM chairman said the eventual goal of tax reforms should be the complete elimination of all exemptions. Any exemption makes life more complicated, increases compliance costs and leads to litigations, he said.
“If the government needs to spend, it needs revenue… 10% of GDP must be spent on health and education, 3% on defence and 10% on infrastructure. However, we as citizens pay around 15% of GDP as taxes. What this means is we pay taxes at 15%, but our demands and expectations from the government are to the extent of 23%,” Debroy said.
(With PTI inputs)
Source:financialexpress.com