The need really is to broaden the base to lower gst rates

The need really is to broaden the base to lower gst rates

The Lok Sabha has done well to clear four laws required to roll out the goods and services tax (GST). The Bills cap the Central GST rate at 20 per cent and the Integrated GST rate at 40 per cent. It is hoped that states would cap the State GST rate at 20 per cent, so that the combined peak GST rate would be 40 per cent. The peak rate is steep. Even so, the constitutional remit of the states allows them, in theory, to ratchet up their GST rates beyond any cap. But this would be counterproductive. A higher indirect tax will burden the rich and the poor alike and is, thus, regressive. The way to remove the temptation for states to push up rates is to widen the GST base to remove exemptions.
States should not ratchet up rates as the GST (Compensation to States) Bill rightly guarantees them full compensation for five years for any revenue loss, in relation to a normative growth from the revenue earned in 2015-16, during the transition. The Bill says that the residual amount left in the compensation fund after five-year period will be shared equally between the Centre and the states. This make sense, and will partially safeguard revenues of the Centre and states.
The need really is to broaden the base to lower GST rates. The four-tier GST structure — with rates ranging from 5 per cent to 28 per cent —excludes real estate, electricity, alcohol and petroleum products. These sectors account for a large chunk of the economy, and excluding these breaks the GST chain and raises the scope for evasion. The GST Council should bring them under the net to prevent states from raising tax rates. It should move swiftly to fix tax rates for different commodities. The setting up of expert panels to remove glitches in the transition to GST is welcome.
Ideally, the levy should be rolled out three months after the rules are finalised and published.