The panel of officers nominated by the goods and services tax (GST) council is likely to recommend increasing the 5 percent tax slab to 8 percent and the 12 percent slab to 15 percent.
It will make a presentation to the GST council on December 18, people aware of the development said. Pronab Sen, former chief statistician, and economist Haseeb Drabu shared their views on the impact of GST rate hike in an interview with CNBC-TV18.
“The rates that we are talking about, particularly the 6 percent rate, that isn’t a very good idea at this stage. In any case, we were expecting over time a reduction in the bandwidth of the GST rates and this would be a part of it. So it doesn’t disturb me very much but the 6 percent is applied to what are considered as the necessities. It is the items of common consumption, which are hurting in any case today. So increase in the GST rate at this point may be a little disruptive. Under more normal circumstances, I wouldn’t have bothered about it at all,” said Sen.
He added: "As far as the consumer price index (CPI) is concerned, we need to get into the mode of factoring out tax effect. It is not a good idea to have tax effects as a part of the CPI. So these are one-offs, they are not trendsetters. One should simply adjust for that. I won’t worry too much about the CPI at the moment. I am much more worried about the fact that if you raise the middle rate, I would have worried less. You are raising the lower rates, which means that precisely those segments of the society, which are having a hard time buying their necessities even today are going to be hit a little harder."
Former Jammu and Kashmir finance minister Drabu concurred with Sen's opinion on the likely GST rate hike. He added that the tax regime should not be a function of the economic activity in the country.
“I will go along with Dr Sen in terms of the impact. What I want to highlight is one should not change the rate to the level of economic activity for GST at this point of time. It is still in a transition phase. It has still not completed the whole regime change. If you start changing rates in relation to the level of economic activity, that is not what the GST is supposed to be in any which way.
"I am now looking at changing rate bands, the best way to do it if at all would be to collapse that band and take it to the levels that was the original idea. I would think that the way it was designed was that you would reclassify commodities in these bands.
“Rate change should not be done to finance compensation. You will have a period when you will have skirmishes between the centre and the states. The real problem is that the GST council has not functioned as it had in the beginning when the entire thing was laid out. That is a key concern."
On falling GST collection, Sen said: “If you think of the way GST works, the bulk of the GST collection are in intermediates, they are not in final consumption. We do get fair amount of final consumption but particularly at the higher end. But for the rest, the bulk comes from the intermediate goods and services.
"There are possibly two things are happening, number one—those which are directly business to consumer (B2C) sales, we may be in a situation where parallel channels of distribution have been set up. That is a problem that has to be fixed administratively, it is not a rate change issue. In a sense I am not very aware of whether or not the state governments which were responsible for collecting sales tax, whether they have diluted their sales tax force because they are the only ones who can operate at the B2C level.
"The central government does not have the wherewithal to do it. Intermediate goods are almost entirely in the domain of the centre. That is where the centre has advantages in collections. There is a problem that has to be fixed at both ends and the problem is not one of the rates but it is one of administration.”
Published On : 11-12-2019
Source : CNBC TV 18
