GST Rate Must Increase to 22% With States Giving up Autonomy: Kerala FM
States giving up limited autonomy and freedom for GST, expect Centre to be more understanding, says Kerala’s Finance Minister Thomas Isaac.
Rejecting the Congress’ demand to cap the Goods and Services Tax (GST) rate at 18 percent, Kerala Finance Minister Thomas Isaac said he will push for a higher rate, of 22 percent, in the coming months. Issac, who is also a member of CPM Central Committee, told BloombergQuint in an interview that all states have demanded a higher rate in order to minimise revenue losses. He added the April 2017 GST rollout deadline is achievable, but it’s a “tight schedule.”
The Kerala finance minister had advocated a rate of 22 to 24 percent during the meeting on the empowered committee of state finance ministers on July 25.
Here is the full conversation of the minister with BloombergQuint.
The Union finance minister said on Thursday that the government is looking at a April 2017 GST rollout deadline. Does this seem achievable in light of the Congress’ demand to introduce the IGST and CGST as Financial Bills?
It is achievable. But it is a very tight schedule, which means they will have to pass the Constitution Amendment Bill again and then introduce it as a Financial Bill. The constitutional amendments have to be accepted by the majority of the states. State legislators have to pass the resolution. We would welcome the April 2017 rollout, if they can do it.
States Lobby For Higher GST Rate
The finance minister during his speech in the Parliament said that states have not agreed on the 18 percent GST rate yet, and the GST Council will reach a consensus on the rate after it is constituted. Are states on board? Are you on board regarding this?
No, we are not. We want a higher rate. The incidence of tax on a consumer product is 30-35 (percent). We want a higher rate but the Centre does not want it because they want more revenue. Very well, they can reduce the rate. All states are imposing 14.5 percent Value Added Tax tax, but now you (Centre) want them to reduce that to 9 percent, and then there will be also be a lower rate which will be about 5 (percent). That is not acceptable to us.
No state will accept it because the range of the revenue neutral rate is between 12-25 (percent). There is no way of scientifically arriving at an objectively revenue neutral rate as it can vary widely depending on the the states’ functions. Therefore, a rational way of going about this will be to look at the incidence of tax burden today and then decide. I would pursue a standard rate of 22 (percent), and then we can re-look at a lower rate on necessities.
GST Inflationary?
There has been a general fear that inflation will increase with the implementation of GST. Do you agree?
How can inflation increase? Inference of tax is declining on manufacturing products. The Central government is not reducing taxes on petrol and diesel, and suddenly hiking the rate and that’s causing inflation to rise. It’s a completely misguided understanding of the situation (that inflation will increase). The GST rate in fact, reduces inference of tax. So, the Government of India will have to take steps to ensure that MRP is proportionally reduced and corporates pass on the reduction in the tax rate to consumers.
Liquor, Petrol Under GST Net?
There has been a debate over including alcohol and petroleum products in the list of exemptions, but states are also pressing for higher compensation. How do you see the two issues unfold?
These are the most buoyant sources of revenue for states. You must understand that whatever limited autonomy states have is being surrendered (with GST). Therefore, we want to be sure that we have buoyant revenue even if we lose autonomy and freedom. The Centre should be sensitive to the concerns of all states. More and more social sector responsibilities are being pushed on to the states and they need to generate revenue. If rates are not right, let the Centre reduce its rates.. that’s fine with us.
Compensation for States
Are all states agreeable to the 100 percent compensation for five years, and reduction going forward?
All states are happy that five years’ compensation will be given and all states want the (GST) rate to be above 18 percent. I did not hear a single state say 18 percent is good enough.