The states are, however, unwilling to back a proposal that gives a carte blanche to the centre to block any tax proposal and effectively takes away their power to change rates… Multiple-rate GST is considered difficult to administer in a complex country such as ours but it is not as if the model has not been tried before. The European Union that has multiple rates is a case in point… While a single-levy system is always a preferred, but in a country such as India given its political realities, it may be an uphill task to make 25 states to agree to it. The flexibility to raise rates should get states on board, though it could increase the complexity of the system.
Experts are, however, confident that a robust and integrated IT system will be able to manage the issues of a multiple rate system. Pressure from industry will deter states from complicating the rate structure prescribed by the Centre and valid nationally, since different levies do pose challenge for cross-border supplies and claiming tax credits.
While the above article is wrong that a single-rate GST is better for the economy (read my article last year in the Mint here to see why a multiple-rate GST is better), what I am happy seeing is that apparently some experts are now ready to publicly proclaim, as this amateur blogger did in that Mint article, that a “robust and integrated IT system will be able to manage the issues of a multiple rate system”.
As I recently wrote in an email to a few acquaintances:
The GST’s main aim is, or at least should be, to not systematically disincentivize buying across the state border or across product categories because of the nation’s tax system (for the former, the within-state VAT gets input credit, but the CST does not)
This integrated market can be can be brought about simply with better IT within IT. That is, better databases for the tax man, which allow for credits across the states despite different state rates based on unique transaction IDs).e.g, net VAT due for somebody in Maharashtra will only be for his value-add in Maharashtra. That is his net VAT due would be unique Maharashtra rate times sales in Maharashtra – Maharashtra rate times purchases from anywhere (Maharashtra or Punjab or Greece). Only that the Punjabi and Greek purchases need to be confirmed by the new smart database.
And removing/subsuming excise etc can be done through a separate bill.Therefore, removing excise/octroi etc, linking various state tax databases, and having same rates for goods and services WITHIN a state will get us to an integrated and efficient market. But we do not need to sacrifice federalism for that. The same-rate unitary GST will remove incentives for state chief ministers to control spending because they cannot propose tax cuts anymore. It will be like 28 people going to a restaurant and telling them that they would share the bill (or in the ratio of their weights if you like). They are much more likely to order wine and prawn than daal and roti.
Pages:
1 Comments.