Chidambaram again bats for 18% GST rate in bill

New Delhi, Aug 3 Just as the income tax rate can't be levied at the whim of the executive, and needs legislative approval, the same must also hold true for the goods and services tax rate (GST), former Finance Minister P. Chidambaram said here on Wednesday.

Batting for the GST rate to be incorporated in the relevant Constitution amendment bill itself -- one of the main demands of his Congress party -- Chidambaram also said an 18 per cent base rate for this pan-India levy was also the most appropriate.

"The empowered committee is the one which arrived at a 15.5 per cent revenue neutral rate and came to the conclusion that 18 per cent should be the appropriate GST rate. The Congress did not suggest the 18 per cent rate -- 18 per cent came out of your report," he said in the Rajya Sabha.

His reference was to the committee currently chaired by West Bengal Finance Minister Amit Mitra.

"If we charge 24-26 per cent, it will defeat the very purpose of GST. Services represent 57 per cent of India's GDP. It will be hugely inflationary if we raise it. It'll lead to tax evasion," said the former finance minister during a debate on the GST bill.

"Today we may not put the rate in the Constitutional amendment bill but we will have to put it in the central bill," he said, wondering why such a step can't be taken by Finance Minister Arun Jaitley while moving the amendments.

Chidambaram said he reason why indirect tax has to be low is due to its regressive nature. "Take the case of soft drink, whether a rich man buys it or poor man buys it, the tax is the same," he said.

The former finance minister's remarks came after Jaitley moved what is called the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, for passage and initiated a debate on the subject. This bill will pave the way for the introduction of a pan-India GST regime.

Earlier, Chidambaram said he was glad that the government had accepted his party's demand not to permit a 1-percent additional levy by some states, so that they can get themselves compensated for any revenue loss that they may incur due to the shift to GST.

The senior Congress leader said the idea of GST was uniformity and the creation of a single pan-India market, but the additional levy went against this very idea and needed to be withdrawn from the bill.

The GST bill, termed as the most radical tax reform since Independence, seeks to subsume all central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like VAT, entry tax and luxury tax, to create a single, pan-India market.