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One GST rate not possible, next reform after compliance improves,
February, 27th 2018

Finance Minister Arun Jaitley on Tuesday said it is not possible to have one GST rate as the country has vast disparities, but assured investors that government will undertake further reforms after improvement in tax compliance standards.

A single rate of GST in India “can’t work at the moment” due to vast disparities in the country’s society, he said while replying to queries from the audience at the India-Korea Summit in New Delhi.

The next stage of reforms will start once India becomes a significant tax compliant society, Jaitley said.

“After we are able to improve the compliance levels the other stage of reform will begin.

“For example, we have two standard rates and in the long run I do see them merging into one. For that to happen it will take some reasonable time that is when the compliance levels start moving up,” said the minister.

On the compliance burden of the GST, Jaitley said it was a little heavy but the process would ease on account of the initiatives being undertaken by the revenue department.

“At the moment we are coming out (with norms). It is almost in the final stages of its preparation, where compliances are going to be made simpler itself,” Jaitley said.

“The second factor is that in a society like India where you still have a significant population which is below poverty line or still deprived, a single rate in India can’t work at the moment,” he said.

He said that the reason behind India starting off with multiple rates was that the country had 17 taxes and 23 cesses which were amalgamated into the GST.

He pointed out that the 28% tax bracket has been significantly thinned and argued that a luxury good cannot be taxed at 5 per cent and there has to be a differential rate in a society with economic disparities like in India.

‘The Indian economy has potential to achieve a growth rate of more than 7-8% in view of policy changes’

Jaitley further said that the the Indian economy has potential to achieve a growth rate of more than 7-8% in view of policy changes, accompanied by a supportive global environment.

The minister observed that over the next 10-20 years, India will continue to remain one of the fastest growing economies in the world.

India has demonstrated in the last few years that it has, even in a global environment of adversity, a potential to self correct itself, to continue to take difficult decisions if necessary and maintain a high growth trajectory, Jaitley said.

He said the country has been able to blend its economic decisions along with political acceptability to the extent that there is now a huge support, almost bordering on impatience, where people want India to reform and grow much faster.

According to Jaitley, most people in India believe that a 7-8% growth rate is an absolute normal for the country but the real potential of India is to beat that.

Therefore, with policy changes accompanied by a supportive global environment, India perhaps has the potential to achieve a little more than that, said the Minister.

He said the Indian economy in the last few years has become very open, it is integrated globally, it invites investments in most sectors and has made its procedures for investment extremely simple.

Jaitley said the government’s decision-making has made doing business in India much easier and whatever challenges and difficulties do arise, there is an extensive debate in the country as to why procedures must be further simplified and a combined national effort to move in that direction.

It’s a rule based decision making where governmental discretions based on individual cases have been virtually eliminated, Jaitley said on the country’s regime.

He said the government has been able to unify taxes and bring about a relatively simpler tax structure and for international investors, indirect tax structures have become extremely investor friendly.

In an apparent reference to retrospective taxation, Jaitley said, “Whatever misgivings we had about our direct tax structures in the past including some erroneous decisions which governments have taken, we have completely eliminated those fears and added more predictability and stability as far as taxation is concerned.”

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