Flat rate vs multiple rates

Prime Minister Modi has made a strong case against a flat rate of tax in GST. Flat rate vs multiple rate has been a raging controversy all along. There are supporters on both sides. Some countries do have flat rates like Australia, Cambodia, Chile, Denmark, Israel, Japan, South Korea, Nepal, New Zealand, Taiwan, and many African countries. But we notice that these countries are not having so much disparate strata of people and are also not federation. Inequality of income is not so rife in these countries. 

Now let me give you some countries with different rates. Belgium — 21,6,12. Brazil — 25,18,12,7. Canada — 7 as central GST but there are 7 different rates as sales tax in different states. China—17,13. France-—19.6, 2.1, 5.5. Germany — 16,7. Italy 20,10,4. Russia — 18,7. Sweden— 25,12,6. Switzerland — 2.4 3.6.  UK —17.5, 5. These are not the latest rates as the rates keep changing but the fact remains that they have got multiple rates and all countries have exemptions. Even those who have single rate have exemptions. Apart from that, there are exemptions for export which every country has got. 

The conclusion is that one rate is a myth for India. It is the best. But best is often the enemy of the good, as Voltaire said.  It is like the neutrality of tax which can be reached only in theory. Prime Minister Modi is right that we cannot have a flat rate now. In India, the situation of people is such that if we charge simple food and clothes at 18 per cent, there will be serious repercussions. So, the best rates would be 28. 16 (merging 12 and 18) and 5 per cent. 5 and 28 should be listed items only and all the rest will fall under 16. Then that big fat Central Excise Tariff book will be redundant. Litigation will be rare. Taxpayers will be happy. Revenue will boom as controversy, evasion and corruption will be minimum.

Sukumar Mukhopadhyay, former member, CBEC, New Delhi

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