4-rate structure for GST is better than a single rate: Arvind Panagariya

Niti Aayog Vice-chairman, Arvind Panagariya has came in support of the Centre’s proposal for 4-rate structure and cess under the Goods and Services Tax (GST), stating that this structure would help in dealing with any possible surge in inflation and lower tax rates for consumers as well as revenue predictability for the exchequer. Panagariya said that “the big gain from GST is having a single tax rate on a product across the country. No tax theory says that one rate is better than two rates.”

Earlier, the Finance Ministry had proposed that GST should have a four-rate structure with two standard rates of 12 per cent and 18 per cent. Food items and other necessities would be taxed at six per cent, while white goods and luxury products would be taxed at 26 per cent, along with an additional cess for luxury and demerit goods. However, a number of states opposed the Union Finance Ministry’s proposal to levy a cess on ultra luxury goods, tobacco and pan masala and for clean energy and instead favoured a higher tax rate on consumer durables.

Panagariya also favoured continuation of cess, dismissing criticism that it would dilute the original idea of a single unified rate. He added that the big gain from GST is having a single tax rate on a product across the country and advantage of levying such a cess is that it would be temporary. “After five years, it can be dropped. In case of a higher tax rate, there may be no inclination amongst States to remove it.”

He also said that a lot of people think that they have identified single tax rate across commodities. But the bigger part is single tax rate on every product across entire country. There is no tax theorem that two rates are better than four. He further said that 'If you do a single rate (16 or 18 per cent) then some of rates you will have to bring very far off. Obviously, then there will be inflation on those particular commodities (with lower rates of tax). There are products, which have 3 per cent rate of tax. If you take those all the way to 16 or 18 per cent then there will be inflation implications.' He also expressed hope that the government will meet the roll-out target of April 1, 2017 for GST but conceded that it may be a “little bit of a race”.