Montek Singh Ahluwalia says multiple rates could lead to disputes and corruption

Montek Singh Ahluwalia, former deputy chairman of erstwhile Planning Commission, says the govt should work towards having a single unified rate in future. Photo: Reuters

Ahmedabad: While hailing the ruling BJP government at the Centre for constitutional amendment of goods and service tax (GST), seen as the country’s single biggest tax reform, renowned economist and former deputy chairman of erstwhile Planning Commission, Montek Singh Ahluwalia criticized the slab rate structure, claiming it would ultimately lead to corruption. Ahluwalia, who was speaking at a lecture at Ahmedabad Management Association on the ‘challenges before the Indian economy’ on Friday said the government should work towards having a single unified rate in future.

He said that the excitement that has come up in the country about having a long awaited GST has taken away attention from the quality of GST that the country is going to get, which according to Ahluwalia, “would not be very great”.

“GST is a major tax reform, it is a bipartisan effort. We have been talking about it for last ten years, but fortunately last year the constitutional amendment that is necessary to make it possible to have a GST was passed…but what kind of GST are we going to get? Most people believe that GST Council has made a lot of progress, they are having their next meeting in a day or two. Many believe that pending matters will get resolved and hopefully in the course of this year, the GST law will be passed,” he said.

While the government had planned to roll out GST, which will subsume excise and service tax and other local levies, from 1 April 2017, the constitutional amendment makes it mandatory to roll out the new indirect tax regime by 16 September 2017.

“An ideal GST would have some exemptions and one single rate. There are about 100 countries that have adapted GST and in the last two decades or so, all the countries that have rolled out GST have either one or two rates. We on the other hand are going to have five rates. A zero rate where half the commodities are going to be, then there is going to be a five per cent rate, then there will be 12% rate, 18% rate and a 28% rate. Also, there is a talk of cess on luxury commodities that is going to be over and above that,” according to the renowned economist.

“This is pretty far from ideal. It will create disputes. And disputes create corruption for one way to resolve disputes is to pay a price...I applaud the GST plan which although a flawed one has many advantages particularly for exporters, it creates level playing field and unifies the country’s tax regime,” he added.

To resolve the issue of multiplicity of rates, the GST Council should at some later point of time put it on their agenda to move closer towards introducing a single rate in a span of three to four years.

In his address hour long address, he stressed on the need for efficient financial system and the need to introduce a ‘bankruptcy law’, better infrastructure facilities, sustainable energy solutions and need to step up efforts for water conservation. If these areas are not neglected, India, he said which has been growing at about 7.5% average from last ten years, might slip down to 6% or even lesser.

Urging various state governments to step up efforts like introducing labour reforms, Ahluwalia said that a lot of what happens in next ten years in India will depend on how the states perform.

Emphasizing that the infrastructure growth is not consistent and that the private sector has a bigger role to play in this sector, he said that the existing infrastructure capacity has already been stretched with the growth that India has seen in the last one decade. Taking the public sector route for developing infrastructure by sidestepping the private sector is not going to work for India, he said.