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EditorialConsolidate the effort

Consolidate the effort


Consolidate the effort

Sudden demonetizing of higher currency notes by the government has caught the country by surpise and shock. But the step has been hailed across the country as a bold and innovative decision to crush the menace of black money and terror funding. A fierce debate has initiated in the country and across the and the decision is taken as a step forward towards drastic economic reforms. But the issue on which the ministers of the states have been grilling their minds for consensus was to decide on the broader economic reform measure like GST initiated prior to the old currency ban.

It is good to note that Finance Minister Arun Jaitley has managed to break the stalemate with States on the Goods and Services Tax (GST) rates, but the plethora of tax slabs to satisfy the myriad demands of States has diluted its benefits. Only time will tell how efficacious the new GST scheme of things will prove to be but it is clear that the original high hopes on GST stand moderated now.

The complexity will compromise the boost to growth and undermine its reliability as a revenue generator. Yet, if there is anything that could deliver on Prime Minister Narendra Modi's and growth agenda, it is the GST reform which will roll out on 1 April 2017, much to the Centre's relief.

The GST Council, set up to oversee the tax, has agreed on a more steeply progressive structure for goods than earlier foreseen with rates of 5, 12, 18, and 28 per cent, depending on the kind of product involved. The standard rates of 12 per cent and 18 per cent proposed at the Council's earlier meeting have been retained, but the highest and lowest tax slabs have been tweaked from 26 per cent to 28 per cent and 6 per cent to 5 per cent, respectively with which the States have willy-nilly agreed.

The concerns of States that levy Value Added Tax at 5 per cent on items of mass consumption were met by lowering the threshold GST rate. Food grain and other items considered essential, that together constitute roughly half the consumer price inflation index, have been exempted from GST.

Since inflation is a tax on the poor and indirect taxes are regressive, this would help check worries about inflationary repercussions. The cess over and above GST to be levied on luxury and sin goods is a measure of doubtful usefulness. The government contends that the cess will help compensate States for five years and that the Council can take a call on doing away with it thereafter. That is only a patchwork solution.

On the multiple tax rates, too, a simplified solution would need to be found in due course. A single GST rate may be non-feasible but there is no harm in striving to move towards it for optimum benefit. Internationally, there is the norm of a single GST rate. All in all, given the constraints of satisfying various States, it is good that a beginning has been made. It would, however, be wise to build upon it.

The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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