The UPA has said it will keep the 2010 April deadline to start GST reform. The
BJP, Left and other prominent regional parties are also supportive of the GST. According to
Kelkar, if you add various local taxes to VAT at the central and state level, the incidence of indirect tax today is close to 30%.
The best fiscal stimulus that can be delivered is by reducing the total incidence of indirect tax from 30% to a single GST rate of, say, 17%. A full 13% reduction in indirect tax across the board will inject new energy in economic activity.
A properly designed GST will not only create a common market across the country, but will bring a large number of unorganised businesses within the tax net as well. The 17% GST can be shared in the ratio of 4:4:2 between the
Centre, states and the local civic bodies.
According to Kelkar the economic value of this GST reform could be $500 billion and has an employment potential of 4-5 million. It could prove to be the single biggest fiscal stimulus from the standpoint of enhanced productivity and employment. It will also be fully in keeping with the spirit of greater fiscal federalism by tax transfers to the third tier of governance. What better way of marrying good economics with good politics!
