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GST rate should not exceed 15 per cent - Rao

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GST rate should not exceed 15 per cent - Rao

The country will switch over to a Common Goods and Services Tax (GST) on April 1, 2010. M. Govinda Rao, Member of the Prime Minister’s Economic Advisory Council, and Director, National Institute of Public Finance & Policy (NIPFP), shares his insights on the hotly debated subject with Business Today’s K.R. Balasubramanyam. Excerpts:
Print Edition: Feb 10, 2008

M. Govinda Rao
M. Govinda Rao
The country will switch over to a Common Goods and Services Tax (GST) on April 1, 2010. M. Govinda Rao, Member of the Prime Minister’s Economic Advisory Council, and Director, National Institute of Public Finance & Policy (NIPFP), shares his insights on the hotly debated subject with Business Today’s K.R. Balasubramanyam. Excerpts:

What do you think is appropriate GST design?
The most important consideration in the levy of GST is the rate of tax. The Empowered Committee has agreed that there will be a GST by the Centre and another by the states, though the rates have not yet been finalised. In order to ensure that the rate is low, you need to phase out tax concessions given to SSIs, area-based exemptions, and other exemptions and concessions given under Cenvat.

What should the GST rate of tax be?
My own back-of-the-envelope calculations show that it should be possible to maintain the existing revenues under GST by levying a total tax of 15 per cent.

How will GST subsume all local taxes?
Many of the prevailing taxes on services have already been subsumed under VAT. There is, however, a problem with Octroi. Except for municipal corporations in Maharasthra, all other states have abolished it. In any case, Octroi is a tax that should not be levied in any civilised society.

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