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Scope exists for consolidating GST rates: former Bengal FM Asim Dasgupta

Dasgupta says there are some deficiencies in terms of tax reforms, GST is logically the next step

Bappaditya Chatterjee | IANS  |  Kolkata 

Asim Dasgupta
Asim Dasgupta

Former Finance Minister Asim Dasgupta, who chaired the that prepared the first draft of the Goods and Services Tax (GST) framework in 2009, says there is "scope for consolidating existing GST rates" to improve the present structure and suggests the highest slab of 28% be brought down to 18.

"The present GST structure has multiple rates of 5%, 12%, 18% and 28%. The can consider whether the rate structure can be simplified and consolidated a bit. It can also look at whether there is any scope of bringing down the highest 28% rate and merge it with the 18% slab," Dasgupta told IANS in an interview.

Having chaired the from 2000 to 2010, Dasgupta pointed out that the panel had earlier proposed two

"Apart from the exempted list and a special rate for gold, silver and precious metals, we proposed only two — a lower rate for necessary commodities, all the industrial and agricultural inputs and a general floor rate, but with a band to make it a bit flexible," said Dasgupta — a Marxist and committed member of the CPI(M) — who was Finance Minister for a marathon 24 years beginning 1987.

Incidentally, Dasgupta attended the midnight event at the Central Hall of Parliament for the GST launch on July 1, where his contribution was publicly acknowledged by Union Finance Minister

Dasgupta, however, said the committee had emphasised a concept of "floor rate and a band around that to uphold the autonomy of the states in choosing the rates," particularly the general rate.

"It is noted that even in the Constitution Amendment (2016) for GST, this provision of choosing of the band with floor rate was specifically mentioned in clause 279. But the fell short of it," he said.

Asked why petroleum products were not brought under the ambit of GST, Dasgupta said: "There were apprehensions in the minds of the state governments that their revenue would slide with the introduction of the new indirect tax structure."

"In fact, around 30% of the states' sales tax revenue is obtained from petroleum products. That is why state governments proposed to keep the inclusion of the petroleum products group in abeyance, particularly during the initial years of the GST regime."

Petroleum products will become part of the GST structure later, said Dasgupta, who holds a doctorate from the Massachusetts Institute of Technology.

Dasgupta felt GST should not lead to inflation.

"Before the introduction of GST, the weighted average of the tax burden of all the indirect taxes of both the Centre and states at the previously existing rates was around 23% while in the GST regime, it has come down to around 18%. This has happened because the input tax credit net is wider now," he said.

Commenting on the on medicines, he said in the context of introducing a state-level Value Added Tax (VAT), the committee had, for medicines, recommended a total exemption of tax for life-saving drugs and the lower rate of 5% for the remaining drugs.

"I cannot quite agree with the present recommendation of the for the inclusion of a much smaller number of medicines in the exempted category and remaining medicines in the 12% and 18% categories," Dasgupta said.

Recalling the story of indirect tax structure reforms in India, he said with the introduction of VAT, the issue of tax-on-tax and related burden of cascading effect was removed as a set-off was given from the tax burden not only for input tax paid but also for tax paid on previous purchases.

There was a "built-in check in the structure on tax compliance" in the Centre as well as in the states, he said.

"As a result, it was found, if you take the five years before the introduction of the state VAT, the average annual rate of growth of the then sales tax was 11% and if you take the next five years after the introduction of VAT, the average rate of growth of tax revenue doubled to 22%," Dasgupta said.

But there were some deficiencies in the regime and in terms of tax reforms, GST was logically the next step, he added.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Fri, July 28 2017. 13:15 IST