The demand for a cap on the GST rate is a red herring, says Rajeev Chandrasekhar, Member of the Rajya Sabha’s Select Committee on GST in an exclusive interview with BTVI .

Do you think the Centre has gone a big distance in accommodating the views of the States?

That was inevitable when you are amending a section of the constitution that impacts the States’ sovereign right to tax; there was a need to work to a consensus on what the model will be.

To those who say this Bill is imperfect and to those who say that there has been a little too much to give to the States; well, that is the cost of consensus building as we create a large common Indian market. I wouldn’t worry too much about this because it is the States that are taking the extra step in giving up some taxation powers to move to a GST regime.

Many are cautioning that we could end up with a prohibitively high rate in the current arrangement. Is that view misplaced?

Yes it is. That’s exactly what I said in Parliament on Wednesday in response to Chidambaram’s statement about capping it at 18 per cent. I don’t understand why there is misplaced sense that the tax rates will be high. The people who have to decide on the rate of the tax are the Finance Ministers of various States and the Central government. These are all political people who understand that a high tax is anti-consumer.

The entire rationale for the GST rests on it being pro-consumer and pro-small business. It is inconceivable in my mind, and I think it is a red herring and waste of time to even ponder a scenario where the GST rates are very high. It is clear that in the early days the tax net was small; and with alcohol, tobacco and petroleum out, that the tax rate may be closer to 18-20 per cent. But over time, and I believe very rapidly, the GST will moderate to a much lower and affordable rate of tax. And that is pretty much the way indirect taxes in this country should go — affordable with a wider base and better compliance.

So will the States bating for a rate higher than 20 per cent in the GST Council find themselves standing alone?

The Centre has committed to maintaining the States’ revenue neutrality for five years. So there is really no incentive anywhere in this constitutional amendment for the States to go jack up the GST to high levels. If they moderate it, their consumers benefit, and if there is a revenue loss from that moderation, the Centre steps in and stops them. So it is neither in the States’ nor the Centre’s interest to increase the rate of GST.

Towards the end of the debate, some differences had resurfaced. So now that we are moving to the actual CGST & IGST laws, what kind of effort is needed in the next 3-4 months? Is this the real period of heavy lifting, and is a 3-month timeline realistic?

We know how India works — when we put our minds to it, we can come up with miracles. It is when we don’t want to reach an objective, we go slowly and obfuscate. After yesterday’s decision, it is clear that most political parties, if not all, want the GST to happen at the earliest. Most State governments want to migrate and move to GST. Given that, I have no reason to believe that we cannot pull this off in the next 3-6 months.

And the most important issue here will be the discovery of the base GST rate. For that ,the GST council needs to sit and look at all the numbers on the table. The CEA’s note talks of a certain rate, but his assumption set is all over the place. So they need to go back to square one and discover what the base rate will be.

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