Panagariya defends Centre's plan for four-tier GST rate, cess

Defending the Centre’s proposal for four-tier rate structure and a cess under the Goods and Services Tax, NITI Aayog Vice-Chairman Arvind Panagariya on Monday said these would ensure less inflationary implications and lower tax rates for consumers as well as revenue predictability for the exchequer.

“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,” he told reporters.

His comments come days after the third round of meetings of the GST Council where 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.

The Centre requires ₹ 50,000 crore for compensating states for any revenue loss under GST for the next five years and had proposed to fund it through the cess.

The Finance Ministry had also 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.

Panagariya argued that the 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 said.

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”.