Letter to BS: Fix GST rate on services at 18% with no input tax credit

This refers to "Reforming GST" by Naushad Forbes (February 20) in which he has observed the need to simplify, lower and make the goods and services tax or GST comprehensive to fulfill its purpose. I think the Letter to BS: GST law needs to let taxpayer pay without input tax creditis to enable the payer pay GST without input tax credit. Some may argue that it will lead to tax on tax but I have a solution for that too. To avoid tax on tax, the GST rate should be first brought down to 2 per cent or 5 per cent for manufacturers when they purchase raw materials. Then when the manufacturers sell the product (except items covered by a GST rate of 28 per cent), a 2 per cent GST should be added in that transaction. In this way, our manufacturers can add the cost of input tax to the cost of manufacturing and whenever they sell their product, they can charge their customers a GST of 2 per cent and deposit the same with the government.

As far as service tax or GST on services is concerned, those should be kept out of the GST’s domain altogether. The GST rate on services should be fixed at 18 per cent with no input tax credit. It is simply a consumption tax or an expenditure tax which used to be a direct tax under the Expenditure Tax Act, 1957, that was repealed in 1968 due to low collection and difficulty in implementation. The GST on services is being collected at the rate of 18 per cent even at present and the customers or citizens of India are paying it without any difficulty. The service providers may be exempted from paying GST when receiving services. 
Hope this suggestion if accepted may reform GST law.

S C Aggarwal 
New Delhi
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