Former Union Finance Minister Arun Jaitley on Monday said that having a single Goods and Service Tax slab would be “inequitable” for a country like India, which has a large population of poor people. A single rate is possible only in “extremely affluent countries where there are no poor people”, Jaitley said on the second anniversary of the launch of the indirect taxation system.
Jaitley referred to the launch of GST as a “monumental restructuring of one of the world’s clumsiest indirect tax system”. He said the new system had led to “only one tax, online returns, no entry tax, no truck queues and no inter-state barriers”, and the system had been friendly for consumers as well as businesses.
Jaitley was the finance minister when the Goods and Services Tax came into effect on the midnight of June 30, 2017. The system subsumed most indirect taxes levied on goods and services into five tax rates – zero, 5%, 12%, 18% and 28%. There have been suggestions to have fewer slabs, or even a single slab, to reduce complexity. The GST Council, which decides the rates, has removed most items from the 28% slab gradually in the last two years.
Jaitley is no longer the finance minister as he opted to stay out of the Cabinet citing health reasons. The GST Council has yet to meet under the charge of Nirmala Sitharaman, the new finance minister.
‘Process to have fewer slabs is on’
In his first Facebook blog post since the Bharatiya Janata Party’s landslide victory in the General Elections, Jaitley said: “The direct tax is a progressive tax. The more you earn, the more you pay. An indirect tax is a regressive tax. In the pre-GST regime, the rich and the poor, on various commodities, paid the same tax. The multiple slab system not only checked inflation, it also ensured that the Aam Aadmi [common man’s] products are not exorbitantly taxed.”
However, the BJP leader said he did not oppose the need to have fewer tax slabs. “That process is already on,” he said. “Except on luxury and sin goods, the 28% slab has almost been phased out. Zero and 5% slabs will always remain. As revenue increases further, it will give an opportunity to policy makers to possibly merge the 12% and 18% slab into one rate, thus, effectively making the GST a two-rate tax.”
Jaitley cited the example of household slippers and a Mercedes car, which he said cannot be taxed at the same rate. He said most consumer items were now under the 18% and 12% slabs, and daily use items were not being taxed or were in the 5% slab. “A sudden reduction of all categories can lead to a massive loss of government revenue leaving the government without resources to spend,” he said. “This exercise had to be done in a gradual manner as the revenues increased.”
In December, Jaitley had said that a single tax rate might replace the 12% and 18% GST brackets in the future, and had called the 28% tax bracket a “dying slab”. He had then made a pitch for having only three slabs – zero, 5% and a standard rate between the current 12% and 18% slabs – with luxury and sin goods as exceptions.
Prime Minister Narendra Modi has also said earlier that his government will simplify GST to a point where more than 99% items come under a tax slab of 18% or lower.
On the first anniversary, Modi had said his government did not intend to introduce a single tax rate, as it would lead to an increase in food and essential items’ taxation. “Can we have milk and Mercedes at the same rate?” he had asked in an interview.