Lower GST will improve compliance, allay inflation fears: CEA

Chief Economic Advisor Arvind Subramanian on Thursday made a pitch for a lower GST rate, saying it will help improve compliance and dispel inflation fears.

“... On balance, I think we should err on side of lower (GST) rate and then, if you discover that you are falling short on revenue, there are other ways of coping with it,” Subramanian said.

He contended that a lot of juggling and reconciliation of multiple objectives will have to be undertaken to decide the GST rate, but “a lower rate is better than a higher rate”.

“I think my preference is on balance all things being equal, it’s better to err if anything slightly on the lower rate because that helps in compliance...,” he told CNBC TV18.

“So, why burden a very difficult policy reform with the burden of having to cope with high rates, which complicates compliance, which creates fears about inflation?”

Last year, a panel headed by Subramanian had suggested 17-18 per cent as the standard rate for bulk of goods and services while recommending 12 per cent for low rate goods and 40 per cent for demerit ones like luxury car, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 per cent.

Under the new indirect tax regime of goods and services tax, rates will be set by the GST Council which will be headed by Union Finance Minister and have state finance ministers as members.

The long-pending GST Constitutional Amendment Bill, which was passed by Parliament last month, got the assent of President Pranab Mukherjee today. With this, the government will soon notify the GST Council, which will decide GST rate, exemptions and the threshold.

Parliament will now have to approve the Central GST (CGST) and Integrated GST (IGST) Bills and state assemblies will pass their own SGST Bills in order to roll out the new indirect tax structure from April 1, 2017.

As for the GST deadline, Subramanian said preparations have been going on for a long time. “My sense so far is lots of work have been going on and hopefully, we should be ready from a technical perspective to be able to meet the April 1 deadline. But again, these are pretty strict deadline, but government is committed to achieving it,” he said.

GST, once implemented, will subsume excise and service tax and various other local levies.