- Recently, Vijay Kelkar (chairman of the 13th Finance Commission) attributed scams in indirect tax regimes to high GST rates; Moots shifted to a single 12% rate, as do most other nations.
Reason for a single GST rate:
- Simplifying the structure: A single GST rate would streamline the structure, making it easier for businesses to comply with the tax system while also lowering the complexity of classification difficulties.
- Manufacturing and exports could benefit from a single GST rate since it reduces the cost of many rates and makes the tax system more predictable.
- Many countries use a single GST rate: In many mature and emerging market economies, a single GST or VAT rate has been successful in optimising tax income and minimising tax disputes. For example, Singapore, New Zealand, the United Arab Emirates, and Japan have chosen a single GST or VAT rate.
- Addressing GST fraud: High GST rates can make it profitable for criminals to dodge taxes. A single, lower GST rate may lessen the incentive for tax fraud and make the system more transparent.
- Reducing litigation: A single GST rate may assist decrease litigation linked to classification issues and subjective interpretations of tax rates.
How does the Indian GST model compare with GST in other countries?
| Particulars | India | Canada | UK | Singapore |
| Name of GST in the Country | Goods and Service tax | Federal Goods and Service Tax & Harmonized Sales Tax | Value Added Tax | Goods and Service Tax |
| Standard Rate | 0% (for food staples), 5%, 12%, 18% and 28% (+cess on luxury items) | GST 5% and HST varies from 0% to 15% | 20 %Reduced rates- 5 %, exempt, zero rated | 7% Reduced rates- Zero rated, exempt |
| Threeshold Exemption Limit | Rs.40 lakh or Rs.20 lakh, depending on the state and supply | Canadian $ 30,000 | £ 85,000 | Singapore $ 1 million |
| Liability arises on | Accrual basis: Issue of invoice ORReceipt of payment-earlier | Accrual basis: The date of issue of invoice OR the date of receiptof payment- earlier. | Accrual Basis: Invoice OR PaymentOR Supply-earliestCash basis (T/O up to 1.35mn): Payment | Accrual Basis: Issue of invoice OR Receipt of payment OR Supply – earliestCash basis: (T/O up to SGD$1mn): Payment |
| Reverse Charge Mechanism | Applies on goods as well as services | Reverse charge applies to the importation of services andintangible properties | Applicable | Reverse charge applies to the supply of services |
| Exempt Supplies | Sale of land and completed buildings, certain healthcare and educational services, essential food items, etc. | Real estate, financial services, rent (Residence), charities, health, education | Medical, education, finance, insurance, postal services | Real estate, Financial services, Residential rental |
The significance of sharing GST with local bodies:
- Promoting Cooperative Fiscal Federalism: Sharing GST income with local governments could foster fiscal federalism by guaranteeing equitable distribution of tax revenues across all levels of government.
- Strengthening their fiscal foundation: Equitable sharing of GST with the third tier of government, i.e., local authorities, would strengthen their fiscal base and allow them to invest in important infrastructure and high-quality public goods.
- Building Fairness and appropriateness: GST is a consumption tax, and taxpayers should experience immediate advantages from paying their taxes. An arrangement to share GST earnings with local bodies would be fair and acceptable.
- Improves Local governance: Sharing GST income with local authorities would improve the level of governance provided by local governments as residents’ demand for high-quality public goods increases.
Source: https://www.thehindu.com/news/national/next-government-must-urgently-fix-unnecessarily-complex-counter-productive-gst-13th-finance-commission-chair/article68039736.ece