New Delhi, November 21, 2017

The government may combine the 12 per cent and 18 per cent slabs for goods and services tax (GST) into one in the near future and reserve the 28 per cent rate only for demerit goods, said chief economic adviser Arvind Subramanian.

While India will never move to a single GST rate, over time there would be a “poor man’s” rate (0 per cent and 5 per cent), a “core” rate (the 12 per cent-18 per cent combination), and the demerit rate (28 per cent), Subramanian said during the course of a 90-minute interaction at the ET office.

Cement and white goods are not demerited goods, but the government was deliberately “going slow” on those items due to revenue considerations.

The chief economic adviser, who had last year proposed a revenue-neutral rate of 15.5 per cent, said GST collections were not doing badly and the government would take a call on the overall fiscal situation in a few weeks.

“I think we are certainly heading in the right direction (on the GST structure),” Subramanian said.

Tax Base Expanding
“I never liked the 28 per cent slab, which I think has created some of the transitional challenges. I think we are very close to making 28 per cent just for demerit goods… 0 per cent and 5 per cent has quite a lot of the tax base and there I think we will not be able to make that much progress as we have to protect the poor. But the 12 per cent and 18 per cent, at some point, can be combined in the foreseeable future into one rate,” the chief economic adviser said, outlining the structure.

“In India, we will never get one slab. We have too much of a socialist mindset and for a good reason,” said the IIM-Ahmedabad and Oxford-educated Subramanian, whose tenure as CEA was recently extended by a year. Subramanian said land, real estate and natural gas could soon come within the purview of GST, and added that he supported the early inclusion of electricity as well. “Last time, land and real estate were on the agenda of the GST Council, but we couldn’t discuss it. I think that will happen sooner rather than later. I want electricity to come in very early because it will enhance competitiveness and help meet the ‘Make in India’ objectives,” he said.

GST collections were in line, Subramanian said, adding that everyone would be surprised by how much the tax base would expand.

“I think broadly on GST we are not doing badly. We are doing a growth of 12 per cent-13 per cent. Broadly, we are in line,” he said and added that states would not see a shortfall.

“At the risk of sounding a little over-enthusiastic, I think we would be pleasantly surprised about how much the base can expand. If you look at the number of registrants or if you look at implied tax base in the next six months we are going to look at a bigger tax base than we thought before starting this enterprise,” he added. Responding to a question about the rupee, Subramanian agreed that there was a section of the political class that wanted a strong rupee.

“There are parts of political class which like a strong rupee. I think that’s something that’s true and that’s something we need to deal with,” he said, pointing to how the Asean economies have used the exchange rate tool to grow.

He said India’s excessive focus on foreign capital has meant lesser control on exchange rate, which in turn had implications for export competitiveness.

“One of my pet peeves against all policymakers in India of all stripes is that we just seem to love foreign capital of all sorts. Every time there is a crisis we open the capital account even more and then the more you open the capital account the less able you are to control the exchange rate,” he said, adding that it is not possible to grow at 8 per cent-plus without strong contribution from exports. “If you love foreign capital then you have to pay the price for it. There is no free lunch in this business.”

[The Economic Times]