GST rate will be harmoniser and standardiser
For
several manufacturing products, the current prices are higher than
whatever the GST rate is going to be. So the prices of manufacturing
products will come down. But the prices of services are lower than
whatever the rate is going to be, so the services rates will go up.
Standardisation is all about paying more for one product and less for
another and create a harmonising base.
Considering
a GST rate of 18%, there will be uniform taxation on goods and
services. The exempted products are petroleum products, tobacco and
alcohol. But there will be products that will be exempted from 18% and
taxed at a lower rate. It has to be realised that if too many products
are exempted, it nullifies the intention behind GST, which is
standardisation. Many states have argued and will argue that food
products should be taxed at a lower rate because they are items of
essential consumption. It is not yet known though what consists the list
of exempted items. It is possible that food product GST rate might be
as low as 4%. If too many exemptions
- Impact of GST will be nullified
- The Revenue Neutral Rate (RNR) goes up. If something is less than 18%, there will be other things which will have a higher rate.
If the tax system is streamlined, it enhances the resources to be spent on everyone.
International perspective
Most
countries that have equivalent system as GST, don’t have a federal
structure. India having a federal structure is expected to have three
different GST rates.
The country that
comes closest to having same GST structure as India is Canada. It took
more than ten years to bring about the reforms in its existing GST
structure.
GST in India
