I fully agree with the editorial of Business Standard, "Get on with GST" (July 23), except on one important point. Your view, which is shared by several writers, is that if the three items - alcohol, tobacco and petroleum - are included, then the neutral rate of 27 per cent many come down to probably 18 per cent. I want to point out that it is not logical at all. It can come down only if the average duty of these three items is less than 27 per cent. It is actually not so. These three are highly taxed items.
Cigarette is very highly taxed both by the Centre and the states. Alcohol is also like that. And it varies from state to state. Petroleum is also a very heavily taxed item like the others. The average tax, that is the neutral rate, for these three items is much higher than the average rate for other goods with respect to central excise, service tax as well as sales tax (VAT). So if these three are included in GST, there is no chance at all that the neutral rate will come down. The editorial has referred to 18 per cent recommended by expert committees in the past. These expert committees have never calculated in great detail as has been done by National Institute of Public Finance. If this research institute is asked to calculate the really revenue-neutral rate, it will do it as economists do. Politicians can reduce it to 18 per cent but that will be arbitrary and there will be revenue shortfall all the time and not only for the first five years.
Sukumar Mukhopadhyay New Delhi
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