The states have been adamant in retaining the tax on petroleum, tobacco, and stamp duty on registration of property, said international tax expert Parthasarathi Shome.
CHENNAI: Nearly 50% of the gross domestic product is outside the proposed goods and services tax (GST) due to which the ideal rate of tax must be 27%, says international tax expert Parthasarathi Shome.
Delivering a lecture on GST organised by the Madras Institute of Development Studies in Chennai on Wednesday, Shome said the states have been adamant in retaining the tax on petroleum, tobacco, and stamp duty on registration of property.
“Excluding the above products from the purview of GST will mean only 50% of GDP will be under GST, which is not the ideal way of introducing the new tax regime. Allowing states to levy tax on petroleum products alone will lead to a cascading effect of taxes which will ultimately be inflationary,” said Shome.
Any rate beyond 20% will be inflationary and most of the countries around the world have the rate below 20%. “For example, China which we always wish to compare, has a rate of 17%, Indonesia 10%, Australia 10%, Germany 16% and United Kingdom at 17.5%,” he said.
GST must be implemented in the country as it would be a starter for bringing the country up the ease-of-doing business ladder. “The latest World Bank rankings of various countries on ease-of-doing business shows India at 130 out of 189 countries taken for study,” said Shome.
On some states opposing the new tax regime, Shome said this was the situation when value added tax (VAT) system was implemented. “Tamil Nadu was the last to implement VAT. For some states, the revenue went up by 30% after they implemented it,” he said.
Tamil Nadu will fall in line as GST is a constitutional amendment bill and the regime will help improve ease of doing business, he said.