GST can push up economic growth by 1.5%: Montek

Making a strong case for implementation of Goods and Services Tax (GST), the Planning Commission today said the new tax regime could push up economic growth by 1.5 percentage points.

"Lots of people believe that one to one-and-a-half percentage points of growth could come from efficiency enhancement of the tax regime and that is not small," Planning Commission Deputy Chairman Montek Singh Ahluwalia said when asked about the impact of GST.

His statement comes a day after Finance Minister Pranab Mukherjee emphasised that the new indirect tax regime could double the economic size of the country to $2 trillion in a short span of time.

Describing GST as an important reform, Ahlwualia said, "From the point of view of efficiency enhancement, it could probably be the biggest bang for the buck. So, I really hope that the states put themselves in a position where they and the Finance Ministry can agree on actually when can it be implemented."

The Prime Minister's Economic Advisory Council (PMEAC), however, said a considerable amount of work, including the tax structure, has to be put in place before launching the GST, which would subsume various taxes including excise, service tax, VAT and purchase tax.

"Accomplishing all these tasks by April, 2011, is a formidable task and it remains to be seen how the Centre and the states will proceed in accomplishing the reform," PMEAC Chairman C Rangarajan said while releasing the Economic Outlook for 2010-11.

According to the report, after implementation of GST, there will be "be gainers and losers and as there is no system for compensating the latter from the former, and the central government will have to compensate the losers."

Having proposed a three-tier structure for the GST, Mukherjee is seeking political consensus for introduction of the new tax regime.

According to Mukherjee, "GST will be a win-win situation for all and will double the size of the economy to $2 trillion in a short span of time."