Arvind Panagariya calls for just 2 GST slabs to simplify system

File image: Ex NITI Aayog Vice Chairman Arvind Panagariya

Tax slabs under the Goods and Services Tax (GST) regime should be brought down to two from four, former NITI-Aayog vice-chairman Arvind Panagariya has said.

Speaking at a lecture organised by the Columbia University’s School of International and Public Affairs in New Delhi on July 20, Panagariya said economists would ideally argue for one tax slab but that would be a “hard sell” for any government. Instead, he batted for two tax slabs—“preferably at 12 percent or 18 percent”.

At present, GST for various goods and services is divided into four slabs of 5 percent, 12 percent, 18 percent, and 28 percent. Earlier this year, officials said the government was looking to reduce the slabs to three. Several states and government departments, however, have suggested tinkering with the rates in each slab, including raising the minimum rate to 8 percent.

The former chief of the government think-tank argued that too many tax rates led to jockeying among industries and constant lobbying. "There are still too many tax rates, leading to demands from industry to place them in lower tax brackets," said Panagariya, who is a professor of economics at Columbia University.

The comments come at a time when the GST council’s recent decision to impose a 5 percent tax on packaged and labelled food items such as pulses, flour, paneer and curd has triggered protest by the opposition, which has also disrupted Parliament’s proceedings on the issue of price rise.

The government should expand the ambit of GST to cover a wider range of consumer goods widely purchased but are not monitored, let alone taxed, the 69-year-old economist said.

Since direct taxes continued to be paid by only a small share of the taxable population, the bulk of the population should pay GST, Panagariya said.

"Almost 50 percent of the items in the CPI basket are outside the GST," he said. The Consumer Price Index (CPI) measures the overall change in prices based on a representative basket of goods and services over time.

Also read: Higher import duties limiting export growth: Arvind Panagariya

The monthly index reflects the changes in the price of various commodities and acts as a measure of retail inflation. While the set of goods monitored through the CPI has been periodically upgraded, it continues to have a narrow view of consumption patterns.

Tackling poverty

Responding to questions on the incidence of poverty falling in recent years, Panagariya said while datasets available to the government remained scarce, multiple studies showed that poverty has declined.

He said numbers obtained by him from an unreleased sample survey corroborated a significant drop in poverty. While he did not disclose the survey he was referring to, Panagariya said he was working on a research paper which should be published in three months.

In 2020, a former part-time member of the Prime Minister’s Economic Advisory Council (PMEAC) brought out a research paper, arguing only 6.3 percent people were poor in India in 2017-18, down from 22.2 percent in 2011-12. The paper added that the 2011-2018 period recorded the steepest decline in poverty in the country.

Referring to these findings, Panagariya said there could be a debate over specific numbers but poverty has been reduced by a wide margin. However, economists have to rely on other information to calculate major indicators such as poverty because of a lack of data, he added.

"Till 2011-12 we had serious sample surveys. After that, we don't," he said.