Kolkata, July 28 (IANS) Former West Bengal Finance Minister Asim Dasgupta, who chaired the Empowered Committee of State Finance Ministers 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 per cent be brought down to 18.
“The present GST structure has multiple rates of 5 per cent, 12 per cent, 18 per cent and 28 per cent. The GST Council 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 per cent rate and merge it with the 18 per cent slab,” Dasgupta told IANS in an interview.
Having chaired the Empowered Committee of State Finance Ministers from 2000 to 2010, Dasgupta pointed out that the panel had earlier proposed two GST rates.
“Apart from the exempted list and a special rate for gold, silver and precious metals, we proposed only two GST rates — 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 West Bengal 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 Arun Jaitley.
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 band with floor rate was specifically mentioned in clause 279. But the GST Council fell short of it,” he said.
Asked why petroleum products were not brought into 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 per cent 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 tax burden of all the indirect taxes of both the Centre and states at the previously existing rates was around 23 per cent while in the GST regime, it has come down to around 18 per cent. This has happened because the input tax credit net is wider now,” he said.
Commenting on the GST rates 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 lower rate of five per cent for the remaining drugs.
“I cannot quite agree with the present recommendation of the GST Council for inclusion of a much smaller number of medicines in the exempted category and remaining medicines in the 12 per cent and 18 per cent 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 VAT 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 per cent and if you take the next five years after the introduction of VAT, the average rate of growth of tax revenue doubled to 22 per cent,” Dasgupta said.
But there were some deficiencies in the VAT regime and in terms of tax reforms, GST was logically the next step, he added.
(Bappaditya Chatterjee can be contacted at [email protected])