A visitor holds paper work and checks documents (Photographer: Krisztian Bocsi/Bloomberg)

Tax Buoyancy, Compliance To Make GST Rates ‘More Reasonable’ In Future, Says Jaitley 

Goods and Services Tax (GST) rates may become “more reasonable” in future as tax buoyancy and compliance improve under the new indirect tax regime, Finance Minister Arun Jaitley said on Tuesday.

“In future...as compliance increases, tax collections increase, there is a possibility of the rate structure becoming more reasonable," Jaitley said at the GST Summit organised by news channel ABP News. A higher tax base in the medium-to-long term would also make rates more reasonable, he added.

The same rationale would apply to both direct as well as indirect taxes, the finance minister said.

He pointed out that under the new indirect tax regime, the rates finalised for products are lower that current weighted average tax rates. The impact of GST rates therefore cannot be inflationary, Jaitley said.

GST would be more efficient by making evasion difficult and compliance will increase. This will make up for the difference between GST rates and current weighted average tax rates.
Arun Jaitley, Finance Minister

Answering a question on whether real estate will be brought under the ambit of the new indirect tax regime, Jaitley said the GST Council will consider bringing real estate, petroleum and potable alcohol under GST after first year of its rollout.

He added that states were skeptical to give away their right to tax petroleum and alcohol, and any further insistence would have led to unraveling the consensus on GST.

Loan Waivers As Per States’ Fiscal Capacity

Responding to loan waivers being given by some states to farmers, Jaitley said the states will have to decide on these waivers based on their fiscal capacity. The finance minister had earlier said that the Centre will not share states’ fiscal leverage in waiving farm loans and the cost has to be borne by them.

The Reserve Bank of India is also concerned about such loan waivers being given from the economic standpoint, as states cannot borrow excessively to run governments as it will skew their balance sheets, Jaitley pointed out. While announcing the June monetary policy, RBI Governor Urjit Patel had said that the risk of fiscal slippages which can entail inflationary spillovers has risen with these waivers.

Till date, states like Punjab, Uttar Pradesh and Maharashtra, and most recently Karnataka have announced loan waivers to farmers.