GST rate cap will give ‘sin goods’ a cheaper run, declares Jaitley
NEW DELHI: Finance minister Arun Jaitley said on Friday an 18% cap on the goods and services tax (GST) rate as suggested by the Congress would result in a flawed system as it could lower duties on a host of “sin” products and luxury items that should attract higher taxes.
Jaitley’s comments came on a day a panel led by chief economic adviser Arvind Subramanian batted for a standard GST rate between 17% and 18% and a revenue-neutral rate (at which there would be no revenue loss to states or the Centre) of 15-15.5%. In a report to the finance minister, the panel also suggested scrapping a 1% additional levy or “entry tax” on cross-border transport of goods, a recommendation in keeping with the Opposition demand.
“There are sin products (such as alcohol, cigarettes) that need to be taxed high. There are polluting products and luxury items that should attract higher taxes,” Jaitley said at a session in the 13th Hindustan Times Leadership Summit.
The panel report proposed a three-tier rate structure —12% for essential items, 40% for “demerit goods” such as luxury cars, aerated beverages, pan masala and tobacco products, and 17-18% for the rest.
The GST, billed as India’s most ambitious tax reform, aims to stitch together a common national market by dismantling fiscal barriers among states. Once implemented, it will replace layers of local levies such as valued-added tax and octroi by a single nation-wide tax.
The 122nd constitution amendment bill, passed in the Lok Sabha in May, is stuck for want of political consensus in the Rajya Sabha where the ruling BJP does not have a majority.
The Congress, which for years advocated the need for a countrywide indirect tax system, has insisted the GST rate be capped at 18% in the legislation itself.