GST rates: Will India be competitive?

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Standard tax rate of 17-18% suggested by the Arvind Subramanian panel under proposed GST is lowest when compared with suggestions by various panels

New Delhi: The standard tax rate under the proposed goods and service tax (GST) should be in the range of 17-18%, a panel under the chief economic advisor (CEA) Arvind Subramanian had recommended on 4 December.

The proposed rates are lowest when compared with suggestions by various panels such as the panel under National Institute of Public Finance and Policy, which were in the range of 23-27%—a rate that was considered too high by the industry.

But will the CEA panel rate be accepted by the GST Council and will India remain competitive compared to other countries once the GST is implemented?

According to cross-country comparison done by the Subramanian panel, Indian GST rates, as recommended by the panel, are still on the higher side.

“The standard rates that we are recommending is still on the high side and not on the low side. The efficiency of the Indian tax administration is comparable but neither so bad as low-income countries nor so good as to be like Luxembourg of the world,” Subramanian said at a press meet on 4 December.

A look at the value added tax and GST rates across different countries shows that a majority of the countries have an indirect tax rate lower than 20%.

Subramanian said that though the tax rate estimate will peg the efficiency of the Indian tax system close to the average of the efficiency in other emerging market countries and above that of low-income countries, it is still well below many emerging market economies and high-income countries.

Referring to the earlier high tax rates estimates, Subramanian said those rates would have made the efficiency of the Indian tax system comparable to that of low-income countries.

“What does this high rate imply about the efficiency of the tax system? It makes it comparable to low income countries and well below comparative emerging market countries and high income countries. It will indicate that we really have a poor tax administration and that our policies are way out of line with other countries,” he said.

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