Aim is to move towards three-tier GST: Debroy Lawreview panel will take final call: FinMin

The ultimate goal of the goods and services tax (GST) is to move towards a three-tier tax structure, said Bibek Debroy, Chairman of the Prime Minister’s Economic Advisory Council, on Friday.

“One must appreciate that GST is only the beginning of a process. There is a terminal goal,” which was to decentralise long-term fiscal and political objectives and move towards a three-tier tax structure, said Debroy on the sidelines of an one-day symposium on future of India, organised by Indira Gandhi Institute of Development Research.

GST was introduced in July 2017, with five tax rates — 5 per cent, 12 per cent, 18 per cent, 28 per cent and 0 per cent — for various social and economic schemes. Some experts have said the rates were too many. “Obviously the system is not perfect today because several products are outside the GST, and we have too many rates. But one must recognise and (gauge) this system against what used to exist,” Debroy told the media at the sidelines of the event.

However, the problem of exemptions persists, and efforts are on to eliminate indirect tax exemptions beyond a certain threshold. “On the tax side, whether it is direct or indirect, the single most important problem is exemptions. Until you reduce the exemptions, tax-GDP ratio is not going to go up and compliance costs are not going to come down,” said Debroy.

On the direct tax side, the finance ministry recently set up a six-member task force to draft a direct tax code, to which the chairman of the PM-EAC said, “What they BIBEK DEBROY, CHAIRMAN, PM-EAC will look at is too early to say. But it is a reasonable guess that in the process, because their task is to simplify the Income-Tax Act, they will also look at the question of exemptions.”

The task force’s recommendations are expected to come in six months.

The combined revenue foregone on direct and indirect taxes for 2015-16 was estimated at ~2,87,100 crore and for 2016-17 at ~3,18,348 crore. The revenue foregone due to tax evasion amounted to five per cent of gross domestic product (GDP). When state governments’ numbers were combined, the revenue loss was about 22 per cent of GDP, he said. Recommendations of an advisory group on GST have been referred to the Law Review Committee for a final view, the finance ministry on Friday said. The next meeting of the Law Review Committee is due on Wednesday and Thursday. According to Confederation of All India Traders (CAIT) General Secretary and member of the panel Praveen Khandelwal, the group had suggested several changes in the new indirect tax regime with a view to simplifying procedures and ensuring automatic refund of taxes. PTI