THIRUVANANTHAPURAM: Finance minister Dr T.M. Thomas Isaac’s insistence on a GST rate of 22 per cent, contradicting even the CPM general secretary’s stand, looks like a repudiation of socialist principles. Once GST comes into force, the prices of only those items, mostly luxury ones, that have a higher VAT on them will come down, not the commodities consumed by the working class that are now taxed low in the VAT regime.
If the ‘price shock’ of the common man has to be absorbed, the GST rate has to be around 18 per cent, a figure recommended by the Congress and seconded by Mr Sitaram Yechury. There are social reasons for exempting or lowering the tax on certain commodities. A higher GST could upend this social logic. Take for instance an essential tool like a knife or a daily-use commodity like copper utensil or an agricultural implement like pruner.
All of these are in the lower VAT categories, taxed either 5 per cent or nothing. Even if the maximum excise duty of 12.5 percent is added to the VAT, the total tax of these commodities works out to a maximum of only 17.5 percent. But Dr Isaac wants the GST rate to be 22 per cent or more. Dr Isaac’s argument is that all the imposts together work out to nearly 35 per cent and therefore a GST rate of 22 per cent was reasonable.
However, his figure works only for businesses and traders dealing in goods, say cars, whose total tax is an accumulation of a variety of taxes like excise, service, customs and VAT. In its purest form, GST has a uniform tax structure, without slabs or classifications. But, as a means to ease inflationary pressures for the poor, Dr Isaac will argue for differential rates, at least for essential commodities.
“If there is such a classification, GST would resemble VAT with its complicated slabs and schedules. But a country with extreme inequality is politically obliged to evolve some compromise to insulate the poor from huge price increases,” tax expert Jose Sebastian said. New Zealand, for instance, has only a single GST rate but it has introduced ‘negative income tax’ to offset the losses suffered by the financially disadvantaged.
