‘GST spurring fresh tax terrorism,’ says former CEA Arvind Subramanian

Former CEA Arvind Subramanian criticizes GST complexity, warns of rising tax terrorism, calls for rate increase for revenue growth.

Former Chief Economic Adviser (CEA) Arvind Subramanian, who authored an official report on the ideal 15.5% revenue-neutral rate for the Goods and Services Tax (GST) regime, said he is not very hopeful of a simplification of the complex, multiple-rate structure of the indirect tax, and lamented that the GST era has unleashed a fresh reign of “tax terrorism” across the country.

“We don’t just need rationalization, which we do need, but we need an increase in the rate. We brought the rate down from 15.5% to 11% but the GST Council has become a Council that only discusses rate cuts. It has become a rate cutting committee and an exemption granting committee, and part of it is because of the of the compensation [to States] that happened, they became very lax but that phase is over,” he noted on Friday (November 29, 2024).

Speaking at a session on ‘The GST Story: Whither Next?’, hosted by the Centre for Policy Research, Mr. Subramanian said unless tax rates are raised on some items, revenue growth will be a challenge.

“We thought the advantage of the GST Council is that, because if States were handling this on their own, if they raise rates, they would face political costs. In the GST Council, you can always blame the GST Council for raising rates, and that political economy dynamic hasn’t worked out. And I am very despondent,” he remarked.

Citing people’s experiences with the GST regime, Mr. Subramanian said something about the GST has encouraged excessive tax demands. “In the Indian system, tax terrorism and excessive demand was always a feature, but under the GST, it seems to have gone up. I don’t understand this fully, but I think because the GST gives more data, people think that governments think that they have greater legitimacy, because somehow they have more data and they say, ‘Oh, there’s more evasion’.”

This ‘tax terrorism’ that the GST has introduced is something that ‘we really have to focus on’, the former CEA cautioned.