In an interview to CNBC-TV18’s Ronojoy Banerjee, Former Finance Minister Yashwant Sinha shared his views on goods and services tax (GST) and if the rate structure is a complex one.
“GST will be, by and large, accepted by the people and I do not think it is going to lead to inflation,” he said.
Below is the verbatim transcript of the interview.
Q: What are your views on the GST? Do you think the rate structure is a complex one?
A: I was not involved in the discussions or in the evolution of the ultimate GST that we see today. But, I would like to remind you that when I had introduced central value added tax (VAT), I had settled for three slabs and I had brought about 12-15 different slabs within three slabs. The philosophy behind that was that we will have a merit rate, a demerit rate and a mean rate – the central rate.
The central rate was 16 percent, the merit rate was 8 percent, the demerit rate was 24 percent and that is where most of the products fell and most of the revenue from central value added tax (CENVAT) came from the mean rate of 16 percent, almost 90 percent. So that was something which had been achieved and therefore, I feel a little disappointed that we have gone back to multiplicity of rates in GST.
Watch: GST Explained In 30 Seconds
Q: Many would say that do not let the perfect be the evil of the good. So this is the best that we could have done at this stage, so let us accept it.
A: I do not know whether a discussion in the GST council was held or in the state empowered group of finance ministers was held about collapsing the rates basically into three.
Q: Which you think would have been more ideal?
A: To begin with, three rates, ultimately, maybe one rate.
Q: What do you then feel could be the complications now because of a five rate structure?
A: Is it five rates or is it seven? Is it eight? One does not know. We say it is five because it is 5, 12, 18, but we have three, we have 1.5. So that is not very clear how many rates there are. That is one.
Second is that 40 percent of the revenue stream is out of GST. So, that is the second problem.
And the third is that in terms of taxpayer-friendly arrangements, what has been done because I am reading disturbing reports even today about the number of filings which may have to be done.
Q: Did you give your comments, your thoughts on the GST closer to when the council was meeting as Former Finance Minister?
A: I have a very bad habit of giving my opinion only when asked.
Q: So was your opinion asked?
A: No.
Q: Do you feel that GST is a political gamble in a sense because interestingly, in your book you have said that the benefits of GST will come slowly and you have said, perhaps around 2019 which incidentally is also the election year? So is this a political gamble going by the experience and your argument that you have given in the book?
A: Not the GST because as long as it does not lead to a marked inflationary situation in the economy, GST will be, by and large, accepted by the people and I do not think it is going to lead to inflation.
Q: The way in which the Congress party responded to the GST launch and the bulk of the GST work happened when they were in power, but they boycotted it because they felt that let us not go overboard. They called it a political tamasha, some even calling it political propaganda. Do you at all find faults in the manner in which the government decided to launch?
A: No, why should I? The important thing is GST was launched. The Congress party is objecting why it was launched at midnight, should it have been launched, done at 11 o'clock in the morning? We can have quibbling of this kind, but it is a big reform and the government was within its rights to celebrate that reform and send a message.
Let me make a very important point that economic reforms will succeed only when the meaning and import of economic reforms are properly conveyed to the people. Messaging is very important and if the government is doing that messaging, how can one object?
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