Services of mass consumption should also be included in 'merit' list to ensure prices of critical services do not lead to inflation.
Business chamber Assocham is batting for the standard goods and services tax (GST) rate to stay well below 20%.
Additionally, services of mass consumption should also be included in the ‘merit’ list to ensure that prices of critical services like telecom, banking, healthcare, railways, do not lead to inflation, according to Assocham.
"An interaction with a large number of Assocham constituents felt that the focus should be to get the maximum tax buoyancy through more and more trade and industry channels in the small scale and unorganised sectors joining the mainstream value chain, rather than keeping the standard GST rate high," the business chamber said in a statement.
In its internal assessment on the GST roadmap, the chamber noted: "No tax reform can succeed unless adequate revenue generation is assured both to the Centre and the states. Likewise, in the case of GST, the Revenue Neutral Rate (RNR) should be worked out, taking into account the tax buoyancy and all out efforts must be made in this direction. With the kind of IT backbone being readied, the taxation stream should be able to detect any single link seeking to break the chain of value. On their parts, the trade and industry would also like to fall in place if seamless input credit is available and adjusted with the net result that the overall tax incidence, especially on goods is brought down."
Doing away of Octroi and entry tax at the inter-state borders would bring in a huge amount of operational efficiencies, which, in turn, should have a positive implication for the transaction cost.
"Our assessment shows that the industry can live with GST benchmark rate of a band of 17-20%. Anything above that will be counterproductive and lead to inflation, especially on the side of services. Besides, the most important stakeholders in the entire process of reforms are the people of India, who should savour the pudding (as its proof) and then will surely support the entire gamut of economic reforms," Assocham Secretary General Mr D.S. Rawat said.
While it is true that the states have concerns over the possible revenue loss, but once tax buoyancy takes place due to GDP growth, operational efficiency and more people getting into the mainstream, it is going to be a win-win situation even for the states.
"After all, it is only the states which can make India a single and common market. This is why; work needs to be done on a war footing in the next seven months to fix each and every problem that may crop up. As far as possible, no sector of the economy should be made to feel GST as a problem, instead it should be welcomed as a major solution to the complexities in the Indian economy paradigm," Assocham said.
On its part, the chamber would reach out to its members and be useful link between the industry and the government, both at the centre and the states, to thrash out any issue that may surface as "we move towards implementation of the most important reform."