Brushing aside criticism, NITI Aayog Vice Chairman Arvind Panagariya on Monday supported the proposed 4-rate Goods and Services Tax (GST) structure saying it will help in dealing with any possible surge in inflation or revenue loss.
Panagariya also favoured continuation of cess, dismissing criticism that it would dilute the original idea of a single unified rate.
Explaining the rationale behind the proposed four rates under GST, he said: "Big gains from GST will be because of having a single rate across any given product geographically." The GST Council is discussing a proposal to have four-slab tax structure for GST with 6, 12, 18 and 26 per cent along with an additional cess for luxury and demerit goods.
There is ongoing debate whether GST, which is to be rolled out from April 1 next year, should be a single rate regime or should it have multiple rates.
Earlier in the day, former finance minister P Chidambaram said the proposed multiple rate GST structure will be "disastrous" and nothing more than same old VAT rates in a "new shape".
"We sincerely hope that we do not misinterpret the design of standard, standard minus and plus rates of GST. We can have 20 rates. It will be disastrous and that cannot be GST, it will be fooling the country," Chidambaram told an interactive session with IIM Calcutta students on economic reforms.
Panagariya, on the other hand, expressed the view that under GST, there will be national single tax rate on each product and "that is where the big gains are".
He added: "A lot of people think that they have identified single tax rate across commodities. But the bigger part is single tax rate on every product across entire country. There is no tax theorem that two rates are better than four." He further said, "If you do a single rate (16 or 18 per cent) then some of rates you will have to bring very far off.
Obviously, then there will be inflation on those particular commodities (with lower rates of tax). There are products which have 3 per cent rate of tax. Those if you take all the way to 16 or 18 per cent then there will be inflation implications.
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