Single rate GST not possible in a country with poor people, says Arun Jaitley

Former Union Finance Minister Arun Jaitley. File  

A single rate under the Goods and Services Tax (GST) is not possible in a country with poor people, former Union Finance Minister Arun Jaitley wrote in a blog post on the second anniversary of the new indirect tax on Monday.

“Those who argued for a single slab GST must realise that a single slab is possible only in extremely affluent countries where there are no poor people,” Mr. Jaitley, who was the Finance Minister for the bulk of the first two years of the GST, wrote. “It would be inequitable to apply a single rate in countries where there are a large number of people below the poverty line.”

Direct taxes were progressive, he explained, as those who earned more paid more tax. Indirect taxes were regressive in this regard since the rate on the same products is the same for the rich and the poor.

“This is not to suggest that the rationalisation of slabs is not needed,” Mr. Jaitley said. “That process is already on. Except on luxury and sin goods, the 28% slab has almost been phased out. Zero and 5% slabs will always remain. As revenue increases further, it will give an opportunity to policy makers to possibly merge the 12% and 18% slab into one rate, thus, effectively making the GST a two rate tax,” he said.

The steady increase in revenue collections from the GST meant that so far 20 States were earning enough revenue to not need the compensation promised by the Centre. The Centre had promised full compensation to any State suffering a loss of revenue due to the GST for five years, assuming that their revenue would have increased by 14% every year without the tax, he noted.

“The fear of the States today is that for the first five years they get a guaranteed 14% increase. The lurking doubt is as to what will happen after five years? Every State has been paid its share of tax as also from the compensation fund, if necessary. We have just completed two years of GST. Already after the second year, twenty States are independently showing more than a 14% increase in their revenues and the compensation fund in their case is not necessary,” Mr Jaitley wrote.

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Printable version | Jul 30, 2021 9:27:44 AM |

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