Over time there should be convergence in GST rates
Naushad Forbes, CII
Nov 04, 2016 | Source: CNBC TV 18
We have to accept multiple rates, but we would like to hear a commitment from the Govt. that over time there will be fewer rates and that what we are starting with will be the absolute maximum rates that will be in play at any point in time.
Secondly, these rates must converge to one or two rates over time and there should be a commitment that there is greater confidence & revenue buoyancy as there are fewer concerns over the distributional impact of having higher standard rates for certain essential goods & as one can make up for that distributional impact through say DBT. A Nobel laureate has shown that fewer tax rates or one tax rate provides for much more efficient and robust tax system in the long run.
One can address distributional issues by direct benefit transfers and if one does that, we should provide the direct benefit transfer instead of a low tax rate on a particular essential commodity and then provide for that commodity to have the standard rate prices.
The cess, being used on temporary basis to take care of additional revenue required by the centre to compensate states, should indeed go away at the end of 5 year period. Moreover, the cess should be limited to demerit goods only and charged at 28%.