Single GST rate can't work in India, says Arun Jaitley

Finance minister Arun Jaitley on Tuesday said that a single rate structure for goods and services cannot work in India as there are vast disparities in the society.

However, the government is looking at rationalising the current tax structure under GST as well as making compliance simpler for the businesses. He was speaking at the India South Korea Business Summit held here in New Delhi on Tuesday.

Currently, there are four GST slabs - 28%, 18%, 12% and 5%.

"A single rate of tax won't work in a society like India where a significant population lives either below the poverty line or is economically deprived," he said.

However, the number of tax brackets could be brought down from present four.

"We have thinned down the 28% bracket, the second stage will be to merge the two standard rates (12%, 18%) within a reasonable timeframe as the compliance levels improve," Jaitley said. India has been very non-tax compliant, he said.

The government began rationalisation of taxes soon after the GST was implemented in July last year. In the first six months, 28% tax bracket was thinned down. Tax rates on nearly 200 items were brought down in November.

"In the first instance, each commodity had to be put in the tax bracket closest to what it was earlier charged. Next was the rationalisation of taxes. We are thinning the 28% bracket. It has already been substantially thinned in the first six months itself. And that exercise is continuing," he said.

"You have a large number of items such as food items which are taxed at 0%. Then, you have items used by less affluent people taxed at 5%. So luxury goods can't be taxed at 5%," he said.

Jaitley said that the country has the potential to surpass 7-8% growth rate and will continue to be one of the fastest growing economies in the world.

"Most in India believe that a 7-8% growth is an absolute normal. But India's real potential is to beat that," he said. "With policy changes coupled with a supportive global environment, the country has the potential to achieve more than that," he said.

He also spoke about the recent incidents of frauds at Punjab National Bank and some other public sector banks. He said the banks have become cautious due to some incidents as many of them have been at the receiving end from some of their clients.

NO ONE TAX?

• The government plans to merge the two standard rates (12%, 18%) within a reasonable timeframe as the compliance levels improve
   
• India has the potential to surpass 7-8% growth rate and will continue to be one of the fastest growing economies in the world, the finance minister said