A Far Cry

A single uniform indirect tax structure to make India one unified common market could be a distant dream with the Centre and the GST Council, a body comprising Union and state finance ministers, looking to settle for a four-tier tax system under the Goods and Services Tax (GST) regime.

As things stand today, the GST will comprise a minimum tax of 6 per cent, two standard rates of 12 per cent and 18 per cent, and a peak rate of 26 per cent, besides additional cesses on sin goods. The government also proposes to have a special tax rate of 4 per cent on gold. This translates into six categories of goods and services. To make matters worse, the Centre is also proposing to levy differential cess on goods that fall under the peak rate.

The government argues that a single tax rate may lead to inflation and the multilayer tax proposal is only an interim arrangement that could be revisited and improved upon at the right time. However, the industry and a section of experts are wondering if it was worth taking the pain to come up with a system that is perhaps only an improvement over the current regime.

Initially, the GST Committee headed by economic advisor Arvind Subramanian had recommended a minimum rate of 12 per cent, standard rate of 18 per cent and a 40 per cent peak rate. This, tax experts feel, would have been political suicide for the party in power as it would have led to high inflation in the initial years.

However, in its present form, it could be a compliance and administrative nightmare. "A kirana store that sells everything from edible oil to toiletries could face a lot of problems complying with the proposed structure. Even for tax authorities it would be difficult to keep track of six different slabs of taxes," says an expert on the condition of anonymity. Differences have also cropped up between the Centre and states over administrative control of service taxes.

Some also believe that the GST Bill gives states the flexibility to fix rates of State GST. "The states may resist the use of this power till they are getting compensation from the Centre. But after the first five years, the state governments could insist on fixing their own GST rates," says Prashant Raizada, National GST leader and Partner, Indirect Tax, BDO India.

Bibek Debroy, Member, NITI Aayog, who defended the government's position to have a multi-tier tax system to begin with, believes that "a proper (a single-rate) GST would take at least 10 years" to materialise. "We have had a messy indirect tax system over the years. So, we will never be able to reach that terminal GST overnight," says Debroy.