Why in news?
Singapore government recently announced changes in the rate of the Goods and Services Tax (GST).
What is the taxation announcement?
- Singapore government announced that it would raise the rate of the GST from 7% to 9%.
- This will be the fourth increase after the GST was introduced there in 1994 at 3%.
- The last increase was in 2007, when it went up from 5 to 7%.
- The reason cited for the latest increase is to help the government raise resources.
- It is to enhance outlays for health care, infrastructure and security.
- It is said that the increase would take place between 2021 and 2025.
- In essence, the duty hike is to be effected over a period of four years.
- Moreover, the announcement for the increase is made 3 years in advance.
What could India learn?
- Early announcement of duty hike is one element of Singapore’s GST structure that India should embrace.
- There are clear advantages of outlining the new rates in advance before enforcement.
- In India, there is virtually no time between the duty increase announcement and its enforcement.
- This is an offshoot of the old mindset that prevailed during the licence-permit-controls regime.
- There is no reason to continue the same practice even after decades of liberalisation.
- Early announcement - Industries could plan their production and sales in keeping with the new duty regime.
- Also, an advance announcement permits reasonable debate and discussion.
- So, if some changes are considered necessary, they can be introduced as well.
What is the way forward?
- A single-rate GST structure is not what India can accept and implement at present.
- It may not be easy to unify the many current GST rates into one rate.
- However, the medium-term goal to reduce the multiplicity of rates could aim for
- eliminating the top rate of 28%
- bringing down the 18% rate by a few percentage points
- raising the lowest rate by a similar margin
- It could contribute to moving towards a two-rate GST regime.
- Even the transition to a two-rate structure should be implemented in phases.
- This will ensure that the consumers are able to absorb the impact and inflation remains under control.
- One of the achievements of the Indian GST regime is that it has not been inflationary.
- However, it must be ensured that items consumed largely by the poorer sections are not taxed higher than the previous rates.
Source: Business Standard
