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There cannot be multiple tax slabs in Goods and Services Tax (GST) and it is nothing more than VAT in “new shape”, P Chidambaram, former Finance Minister and Rajya Sabha MP, said here on Monday.
According to him, a well designed GST is expected to have a standard rate, a plus (standard) rate and a minus (standard) rate. But it cannot have different rates across the board.
The country’s biggest ever indirect tax reform in recent times, the GST will subsume a number of indirect taxes at the State and Central levels. Its targeted roll-out date is April 1, 2017.
“We can’t have 20 (different) rates. This will be disastrous and that cannot be GST. It will be fooling the country. That’s simply existing VAT rates in a new shape,” he said at a seminar on ‘25 years of Economic Reforms: Retrospect and Prospects’ organised jointly by the Observer Research Foundation and IIM-Calcutta.
Chidambaram hoped that the GST council will reduce the number of rates to “three or so”. “We sincerely hope that we do not misinterpret the design of the standard rate and standard plus & minus rates,” he added.
Imposition of GST, however, might lead to an inflationary effect in the short term. An increase in service tax rates is likely to be the main cause for inflation. “Some economists say, in the first year GST will be slightly inflationary… However, over a period of time it will level off. Whatever the standard rate be, it will raise the service tax rate,” Chidambaram said.
Reiterating that GST was good for the economy, he further added: “I do not think that inflation will be so high that people will protest (GST imposition).”
Regional parties, Chidambaram said, were not against reforms. But they thought specifically on the impact (of policies) at a very State level. Even when the Congress-led UPA had implemented VAT, some had not joined initially. “Eventually all States will fall in line (with the GST),” he said.
Fiscal deficit Chidambaram pointed out that fiscal deficit should be contained within the “3 per cent of GDP” range. “We must achieve the fiscal deficit target if not this year; then by 2017-18,” he said.
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