Next port of call. Need to introduce 12% single rate GST system at the earliest, says Vijay Kelkar, Chairman of 13th Finance Commission

The next government at the Centre must at the earliest introduce a single GST rate system of 12 per cent across the country, Vijay Kelkar, who was Chairman of the 13th Finance Commission, has suggested.

• Also read:GST: Boost for businesses

Also, the new dispensation should go in for a constitutional amendment to ensure equitable sharing of GST proceeds with the Centre, States and the local governments such as municipal corporations, he said.

A constitutional amendment will also be required to create the Consolidated Fund for the Third Tier Government, according to Kelkar.

“Equitable sharing of the GST with the Third Tier will go a long way in strengthening the fiscal base of our urban governments and also to deepen democracy and governance at the grassroots level”, Kelkar said  after receiving the 4th TIOL Fiscal Heritage Award 2023 here. 

India is moving towards a seven-phased general elections beginning from April 19 and slated to end on June 1.

Kelkar, who was former Finance Secretary and N K Singh, Chairman of 15th Finance Commission were conferred with the TIOL Fiscal Heritage Award 2023. Renowned economist Jagdish Bhagwati was Conferred the Kautilya Global Award 2023 in the capital on Saturday.

All the awards, instituted by tax platform Taxindiaonline.com (TIOL), were handed over to the awardees by the former President of India, Ram Nath Kovind.

Kelkar, who played a pioneering role as a bureaucrat in framing the initial GST architecture during his stint at the Finance Ministry, highlighted that the plethora of GST rates (current system has five different rates besides the compensation cess on certain goods) has made the Indian GST system unnecessarily complex. 

“In most of the developed and emerging market economies as well, there is a policy of single GST or VAT rate on the goods and services. The countries having a single rate and simple GST or VAT laws have been successful in optimising the tax revenue and minimising tax disputes”, Kelkar said.

The ages old tax policy of having a differential tax rate for ‘must have’ and ‘nice to have’ goods and services should be done away with, he added.

In fact, very early in the GST debate, a single rate of 12 per cent was recommended by the 13th Finance Commission, which gave its award for the period 2010-15.

India’s gross Goods and Services Tax (GST) revenues hit their second highest level of ₹1.78 lakh crore in March, 2023. This was much higher than the monthly average collection level of ₹ 1.68 lakh seen in 2023-24. In 2022-23, the average monthly collection stood at about ₹ 1.5 lakh crore.

Kelkar highlighted that India is currently rapidly urbanising and the Urban India will need to make maximum contribution to India’s economic growth, rapid employment generation and strengthening of its technological prowess to compete successfully with the major global powers. “Our urban economy requires much more efficient infrastructure and greater supplies of the local public goods. Unfortunately, our urban local bodies are woefully short of the needed fiscal base to undertake investments for the supplies of needed high quality public goods”, Kelkar said.

He also suggested the creation of an independent Secretariat for the GST Council. 

“ It is understandable that in the formative decade of the GST Council, the Union Finance Ministry provided the support through making available the services of the Union Revenue Secretary as the Head of the GST Secretariat. 

It is, however, possible that the state governments, who are also the members of the GST Council with equal rights, may not always feel that the present administrative arrangement is neutral and unbiased in terms of its support or the advice it offers to the GST Council”, Kelkar said. 

He also highlighted that all the local bodies now elect atleast one-third women as the elected officials. 

• Also read:10 years of NDA: GST, the landmark tax reform, stabilises after a rocky start

“Sharing of the GST with the local bodies can profoundly improve the local governance. Making available resources by GST sharing with the local bodies led by growing number of women leaders will vastly improve the governance of all local bodies and also improve our urban infrastructure and supply of quality public goods”, Kelkar said. 

COMMENT NOW