Following the footsteps of Nobel laureate ‘James Mirrlees’, various economists broadly agree that indirect taxes should be uniform as is the nature of GST and the distributional concerns left to direct taxes and benefits transfers.
Section 19 of the Constitution (101st Amendment) Act mandates that the GST be implemented within one year of its notification. Section 20 calls for the President to “remove difficulties” in implementation, including the time line in transition to the new amended provisions but it is an emergency provision.
Informal consensus has been reached on many issues, essentially on a four-slab tax structure of 6, 12, 18 and 26% and of course, the zero rate for exempt items. Functionally speaking, exemptions once granted are difficult to withdraw, and multiple rates yielding progressivity of tax incidence and taming inflation are often misplaced beliefs. Hence, it is often advised that the GST Council should reduce the number of rates from five to three, or at most four.
Moreover, the coverage of GST would be ineffective with electricity, petroleum products, tobacco and alcohol for human consumption and land and building not touching the wand of the uniformity.
Besides the usual hullabaloo over the trimming of ‘cooperative federalism’, the experts are vary of the extension of Centre’s tax base to the distribution chain of value addition beyond production, bringing services under the states’ tax net, having a uniform tax base for the Centre and the states, and elimination of tax export from one state to another.
But the non-statutory issues stem from within the application of the Act, such as -:
Building up expectations paves path for reforms. But, when belied for unrelated and transitory short-run reasons, they spell trouble. Prudent economic management dictates less volatility in the market structure. The pinch of the indirect taxes created vagaries of cost overrun, especially with regards to the factors of production. Genuine uniformity should strike a definite chord with input costs and output revenue growth. Otherwise, GST would end up as yet another failed tax legislation which India cannot afford at this epoch of time scale.
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