Implement gst three months after rules are finalized

Implement gst three months after rules are finalized

The Goods and Services Tax (GST) Council has reportedly approved the draft Central GST and the Integrated GST laws. This is welcome, and would enable the Centre to introduce the legislation in Parliament. The council expects to finalise the model state GST law by mid-March. All state legislatures have to pass the law. All rules of all laws have to be finalised and published. Only thereafter can companies start preparing their accounting systems to switch to GST. What is sacrosanct is not an arbitrary date for commencement of the tax but a minimum period of three months after publication of GST rules for the actual tax rollout.
A peak rate of GST at 40 per cent, instead of the earlier agreed upon rate of 28 per cent, is a bad idea. The rationale of leaving room to merge cesses into the GST rate is spurious. The cess (read: a sin-tax component not eligible for input tax credit) on the highest tariff of 28 per cent for ultra-luxury and demerit goods need not be merged into GST.
The peak rate along with the cess will keep the chain unbroken, while discouraging sin consumption. The proceeds of the cess will be used during the transition period of five years, to compensate states for any revenue loss. States must not fret. They will collect tax on services and even a share of the Central GST from the divisible pool of taxes. That’s a revenue bonanza.
As the Indian economy becomes more formal and organised, more products and services will come under the GST. It creates audit trails that would widen the tax base, and help bring down rates.
The average value-added-tax rate in the OECD rose from 17.7 per cent in 2009 to 19 per cent in 2015 as many members of the EU raised rates following the financial crisis. It has remained stable since 2015.
The model law must have commodity-specific rates approved by Parliament. The council must stick to the original four-rate structure ranging from 5 per cent to 28 per cent. Regrettably, it excludes real estate, electricity, alcohol and petroleum products. Subsuming all indirect taxes is the way to go. The greater the coverage, the lower the rate of tax.