Jaitley said that most items of consumer use have been brought in the 18 per cent, 12 per cent and even 5 per cent category.
New Delhi: Former finance minister Arun Jaitley said policymakers could merge the 12% and 18% slabs under the goods and services tax going forward as revenue increases, thereby effectively making it a two-tier tax.
Jaitley made the suggestion in a Facebook post on the second anniversary of the GST roll out. He had opted out of the new government due to health reasons.
The former finance minister, who had led the GST talks with states, said as many as 20 states were already showing more than a 14% increase in their revenue. These states no longer require the Centre to compensate them for revenue loss arising out of the GST implementation, he said.
Under the GST framework, most items of consumer use have been brought in the 18%, 12% and even 5% category, Jaitley said.
The GST Council, chaired by the union finance minister and comprising finance ministers of states, has reduced tax rates over the last two years, leading to a revenue loss of more than Rs 90,000 crore, he said. “Except on luxury and sin goods, the 28% slab has almost been phased out. Zero and 5% slabs will always remain,” he said.
Observing that a sudden reduction of tax rates on all categories of goods could lead to a massive loss of revenue for the government, leaving it without resources to spend, Jaitley said: “This exercise had to be done in a gradual manner as the revenues increased.”
After the roll out of the tax system in July 2017, the average monthly GST collection in that fiscal year was Rs 89,700 crore. In the next year (2018-19), the monthly average increased by about 10% to Rs 97,100 crore.
“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,” Jaitley said.
A single-slab GST is possible only in extremely affluent countries where there are no poor people, he said, adding that it would be inequitable to apply a single rate in countries where there are a large number of people below the poverty line.
“In the pre-GST regime, the rich and the poor, on various commodities, paid the same tax. The multiple slab system not only checked inflation, it also ensured that the aam aadmi products are not exorbitantly taxed,” he said, adding: “A hawai chappal and a Mercedes car cannot be taxed at the same rate.”
This, however, is not to suggest that the rationalisation of slabs is not needed, he said. “That process is already on.” The GST system currently has four slabs — 5%, 12%, 18% and 28%. On top of the 28% slab, a cess is levied on automobiles, luxury, demerit and sin goods.
Source : https://economictimes.indiatimes.com/news/economy/policy/gst-may-become-two-tier-tax-with-merger-of-12-18-slabs-jaitley/articleshow/70022327.cms