(Source: Bloomberg)

The Two Big Challenges Post GST Implementation, According To Arvind Subramanian

Rates are likely to be rationalised and simplified under the Goods and Services Tax (GST) structure over the next one to two years, Chief Economic Adviser Arvind Subramanian told BloombergQuint in an interview.

The other big challenge, Subramanian said, will be to bring more items under the ambit of the new indirect tax regime to be launched at midnight of June 30.

Two challenges ahead are simplification of rates, and bringing real estate, power, petroleum, natural gas and alcohol under the GST net.
Arvind Subramanian, Chief Economic Adviser

Although the current GST rates are not completely revenue neutral, these have been fixed in a way so as to to check inflation, India’s chief economic adviser said. “The advantage of that is the concern on inflation should come down, if revenues fall short that means prices will come down.”

A revenue-neutral rate is a single tax rate at which the Centre and states will not have to bear any loss in revenue in the GST regime.

A panel headed by Subramanian had recommended a revenue-neutral rate of 15 percent, with a standard rate of 18 percent for most goods and services.

Currently, GST has four rates – 5, 12, 18 and 28 percent – with an additional cess over and above the highest tax rate.

In addition, gold will be taxed at 3 percent, rough diamonds at 0.25 percent, while many items, such as fresh vegetables and fruits and healthcare and education services, are currently taxed at zero percent.

Implementation Challenges May Impact Sales, Growth

Subramanian said unforeseen challenges in implementation of the new indirect tax regime will have an impact on growth. “If we have implementation challenges, sales and growth will get impacted. A lot depends on what these challenges will be and how quickly can we overcome them.”

He hopes, however, that “teething troubles” will not last more than three to six months.

Subramanian declined to share an estimate for growth in government’s revenue post GST, saying it’s tough to give a projection due to lack of information.

“I think the expectation is that we will get a lot of gains...people outside the net will come under the tax net, and how much increased compliance will be in income tax will...as we will get more information on what firms will buy and who's buying them,” he said.