Convergence of the 18 per cent and 12 per cent rates to a single rate under the Goods and Services Tax will not be an easy task, believes former Finance Minister P Chidambaram.
“The government should have started with a single standard rate with a standard minus and a standard plus,” he told BusinessLine in an interview, adding there are still problems with the GST apart from multiple rates. Excerpts:
There have been multiple rate changes in the GST. Do you think it was necessary?
This is belated wisdom. They should have started with the revenue-neutral rate which was recommended by the then Chief Economic Adviser Arvind Subramanian.
However, they started with high rates and now they are persuading or cajoling or threatening manufacturers to reduce the rates.
They are holding the threat of the National Anti-Profiteering Authority. Once the prices are set taking into account the high rates of tax, it is not easy to bring it down even if the taxes are lowered.
What they have done is completely wrong and we have been pointing it out for the last 18 months.
What fiscal impact will the rate changes have?
It will hit the fiscal deficit. They are already short of the targeted revenue collections from the GST, and further reduction of rates will hurt the fiscal situation. But then, they should not have set the revenue targets so high if it was the intention to lower the rates over 18 months.
Or they should not have set their expenditure targets so high, if they were not confident of getting the budgeted revenue. They have made mistakes on both sides of the balancesheet and they have to pay a price for it.
There is talk of converging the 18 per cent and 12 per cent rates into a single standard rate. How easy will that be?
It would have been easy had they started with a standard rate, with a standard minus and a standard plus during the transition period. But if you are trying to unscramble a scrambled egg, it will be difficult.
The composition of the GST Council has changed with the recent Assembly elections. Will the non-NDA States act as a counter?
Even at the last meeting on December 22, Punjab Finance Minister Manpreet Badal protested against the methods followed and the decisions taken. I understand that Madhya Pradesh, Chhattisgarh and Rajasthan did not send their Finance Ministers as they had not yet named them. I don’t think the Congress State Finance Ministers will oppose changes in the GST regime for the sake of opposition but, we will press our point of view on how the GST should have been structured originally and what can be done in the remaining three or four months to correct the mistakes. But I think Manpreet Badal was right when he said if the next government is led by or composed of non-BJP parties, there will be a complete re-think on the GST. I think he called it GST-2 but that’s a shorthand way of saying there will be a restructuring.
Are there other problems in GST apart from rates?
The problem with the GST is not only the rates. Cases are pending in courts, judgments have been delivered by some courts, and these problems are being ignored to create an impression that the only problem is rates.