‘GST Council should increase rates’

“Rates go up, revenues go up, and the need for compensation goes down.”

The Goods and Services Tax Council has become a “rate reduction panel”, former chief economic adviser Arvind Subramanian said on Friday, suggesting the council should consider raising rates, which would increase revenue and reduce the need to renew the compensation assignment.

“My opinion is that the compensation tax should not be completely renewed… due to compensation-induced moral hazard,” Dr Subramanian said.

“Now if it is then said that the Finance Commission should make some provision for this… to offset that, that is also a form of moral hazard,” he added.

“The solution to this has to be that rates go up, revenue goes up and the need for compensation goes down,” Dr Subramanian said at a conference organized by the Center for Policy Research titled ‘The Story of GST: Where Next ?’ in New Delhi.

The former CEA also said that India’s GST system, which was introduced in 2017, remains very complex and there was a need to simplify it.

“The GST regime is very complicated. There are 50 (different) cessation rates and if I look at other things… I could get to rates of 100,” Subramanian said.

He also expressed concern over what he described as “tax terrorism”, where excessive tax demands have become more prevalent under the GST.

He emphasized that while tax issues have always been a part of the Indian system, their intensity has increased since the GST was implemented.

According to him, the focus should be on addressing this problem.

He further noted that the GST, introduced on July 1, 2017, was aimed at rationalizing India’s tax structure by consolidating 16 indirect taxes and cesses earlier administered separately by the Center and states.

This resulted in a more unified tax system.

Currently, the GST system has five broad tax brackets: 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent, with an additional tax on luxury and harmful goods.

Dr Subramanian, who had previously recommended a three-tier GST structure in 2015, criticized the GST Council for focusing mainly on reducing tax rates and offering exemptions, instead of considering rate hikes to address revenue shortfalls. .

While acknowledging that the GST is an important tax reform and a milestone in Indian economic policy, Dr. Subramanian cautioned that the complexity of the system and the rise of aggressive tax enforcement remain pressing issues that require urgent attention.

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