Fin panel
moots dual rate for GST, end to all sops
A task force on GST set up by the Thirteenth Finance
Commission has recommended the tax on all goods and services be dropped to 5% at
the Centre and 7% at the state level, and that all exemptions be scrapped. It
does not, however, recommend a concessional rate for essential items, as is the
norm at present with the central excise and state value-added tax.
The task force recommendations need not form the basis
of any decision on GST framework made by the Centre and
states, both of which are at an advanced stage of
finalising their proposals for a dual GST. However, it
would serve as an input for the Finance Commission to
work out the formula for sharing Centre’s tax revenues
with states.
Tax experts, however, doubt whether the recommendations
would be acceptable to states, even though revenue gains
from implementing the proposals of the task force could
be Rs 70,000 crore.
The report suggests that states as well as the Centre
completely give up their discretion to effect any
changes to tax rates unilaterally.
The changes will have to be approved by a council of
ministers, which would have the state finance ministers
and the Union finance minister as members. States would
see this as an encroachment on their fiscal autonomy.
The council is to be a constitutional body, unlike the
empowered panel of state FMs which is a toothless body.
The panel has recommended that exemptions given to SEZs
be scrapped, and instead all goods and services exports
be zero-rated . Only public services provided by all
levels of government, unprocessed food covered by the
PDS, education and health are to be exempt.
Other far-reaching recommendations include bringing real
estate into the ambit of GST. Thirteenth Finance
Commission chairman Vijay Kelkar had been keen on this,
and said as much at various fora. GST on real estate
would benefit homebuyers. Prices would fall as
developers would get credit for taxes paid on all
inputs.
Said KPMG India executive director (indirect tax &
regulatory services) Pratik Jain: “The overall
perspective and direction of the recommendations are
good—tax rates can be moderate only when the tax base is
broadbased.”
The impact of broadbasing the tax and dropping the rate
would be mixed. At one level, tax rates on most items
will plummet, translating into lower prices for buyers.
The report suggests the transition to the “flawless GST”
would result in a 1.22-2 .53% drop in the prices of most
manufactured goods.
Conversely, a host of items that are currently outside
the tax net or enjoy concessional rates—such as agri
commodities and services —may become slightly expensive.
