Niti Aayog member Bibek Debroy today said any suggestion that the Goods and Services Tax will boost GDP growth by 1-1.5 per cent is “utter rubbish”, terming it as an “imperfect GST” following changes from the originally proposed “ideal” structure.
The noted economist, however, quickly added that he will not “contradict” Finance Minister Arun Jaitley and Revenue Secretary Hasmukh Adhia, when pointed out that they have been maintaining a similar boost to the GDP from the GST regime.
Debroy also said the number of countries with GST is not more than six or seven, even as some “rubbish” figures of about 140-160 countries having GST are floating around.
The Niti Aayog is a government think-tank mandated to advise on policy matters.
Debroy said the Indian GST is not an “ideal” one because of the country’s federal structure while a multiple rate structure was also a problem to the new tax.
“When you see figures floating around, there will be 1- 1.5 per cent increase in GDP after implementation of GST. For God’s sake, that is utter rubbish,” Debroy said while speaking at a session during the GST Conclave organised by a Hindi news channel.
“For an imperfect GST, I have no idea what is the figure. It might be even more, it might be less, but this particular figure (1.5 per cent) was for ideal GST,” he said. “That figure was based on the model that the NCAER did in the course of the 13th Finance Commission report for an ideal GST. We are nowhere near that ideal GST, this is just the beginning of a process,” Debroy said.
The moderator pointed out to him that Jaitley and Adhia have also talked about such a boost to GDP from the GST, to which, Debroy said, “I won’t contradict them.”
“That’s rubbish. There are many countries in the world which have VAT, a VAT is not same as GST. VAT is the stepping stone towards GST.
“The number of countries in the world that have GST is not more than about 6-7 countries and if you look at these 6-7 countries that have a GST, except for one country (Canada), all the others are unitary countries,” Debroy said. The eminent economist noted that the Indian GST is not ideal because of its federal structure.
“Should I tax items that are perceived to be elitist at higher rate, and should I tax items of mass consumption at lower rate? I personally think, as an economist, we should not do that,” Debroy said.
“You do that through direct taxes and not through indirect taxes. There are other ways of addressing these issues,” he added.
Debroy pointed out that the moment you use indirect tax policies to achieve this purpose, you are automatically going to have multiple rates.
“And one of the problems, which we have with the present GST is the multiple rates,” he said. Noting that no matter how good is intention of governments, there may be plenty of administrative GST glitches, Debroy said, “Hopefully, glitches will lead to tweaking of the GST law.”
Debroy said he would have preferred a single GST rate as multiple rates may create artificial barriers. Talking about impact of GST on inflation, he said prices of manufacturing products may come down and those of services may go up.