Many roads lead to a sound GST

Vijay Kelkar and I have a column in the Business Standard today, Many roads lead to a sound GST.

The GST was originally intended as the replacement for the complex array of indirect taxes which creates many frictions that hold back private investment. Some basics have yet to fall into place: a low, single rate; a universal base; zero rating of exports; GST on imports; simplicity of the legal and enforcement system.

This is a unique moment in world history, where global firms seeking to reduce their activities in China can potentially move production to India. These firms face a combination of customs tariffs embedded in multiple FTAs, other non-vattable indirect taxes, multiple GST rates and PLI. The levels of taxation seen here, and the policy risk associated with changes in any of the multiple rates, add up to an important barrier for private investment in India.

Cities are the engine of growth, and there is an urgent need of an incentive compatible financing pillar for the third tier. A 2% slice of the GST, delivered to the city in which consumption takes place, would be a great solution.