Have uniform rates for broad categories

Have uniform rates for broad categories

The Centre and states have done well to arrive at a consensus on the goods and services tax (GST) rates for at least 6,000 items. The fitment is reportedly in sync with the current effective rate for products based on the harmonised system of nomenclature (HSN) codes, a globally standardised system of names and numbers to classify traded products.
The RBI’s latest report on state finances too wants the initial GST rates to be “suitably calibrated to avoid disruptions to economic activity and macroeconomic stability”. To avoid category confusion and disputes, it is advisable to have the same rate of duty on all goods under a six-digit code. At any rate, a common rate must apply to all things under an eight-digit code.
In India, there is a tendency for governments to show their commitment to various social goals such as equity and state empathy by lowering the tax rate on certain goods that are deemed to be consumed by the poor. This would result in, say, biscuits that cost less than Rs 5 a packet bearing a lower rate of tax as compared to biscuits that cost more, although both kinds would come under the common HS Code 19353100.
If the tax rate is based on a common HS code, this practice would have to be given up. But it would greatly enhance business efficiency and avoid administrative disputes, litigation and the scope for administrative discretion and the scope for purchasing favourable administrative discretion.
The higher efficiency would translate into faster growth and job creation, denting poverty far more surely than marginally cheaper biscuits would, in the presence of administrative discretion. Some pain is inevitable in the short term if rates go up for some products and services, but there is scope to lower the rate once the tax base widens.
Ideally, all products and services — including items of mass consumption — must attract GST that creates audit trails in the income and production chain. States must see reason and agree to bring large chunks of the economy that includes petroleum products under GST. Most products must be covered by the standard rate.