Goods and Services Tax (GST) rate of 18 per cent would be ideal, and beyond that demand would be directly hit, Confederation of Indian Industry (CII) president Naushad Forbes has said. The intention of GST is not to increase or decrease the total amount of taxes collected, he said and added that the implementation of the GST could pose a challenge.
“The revenue neutral rate of 18 per cent would result in an increased collection of taxes in the long run. Beyond 18 per cent, demand would be directly hit,” Forbes said while interacting with reporters in Kolkata.
“Supposing you had 22-23 per cent, it will directly hit demand. If you suddenly end up paying 5-8 (percentage point) more, then the immediate effect is you consume less,” Forbes explained.
The GST is the biggest tax reform and it would push the GDP growth by 1.5 to 2 per cent, Forbes said, and added that the projected GDP growth rate would be around 8 per cent in 2016-17.
He said there is a strong hope for betterment due to several factors like high FDI inflow, falling interest rates, strong macro fundamentals, and all three—inflation, fiscal deficit, current account deficit—being under control.
The agricultural sector is expected to grow at 3 per cent, while industry and services sectors are likely to grow at 8.2 per cent and 9.8 per cent, respectively, he added.
The implementation of the GST, however, could pose a challenge as transactions of producers and end consumers have to be linked. Moreover, taxes have to be matched on the IT systems of Centre, states and companies.
For smooth working of the GST, it is essential that all states are on the same page at least in terms of systems and procedures. “A common tax is okay. But you (states) cannot have your own form. If you have that, then there will be 29 different forms in 29 different States. That defeats the whole purpose,” he said. (RKS)