Cess on top of GST is regressive

Any idea to slap cess on top of 28% Goods and Services Tax in the highest slab beyond the four demerit items already deliberated would be regressive and contrary to the basic idea of a  simple tax regime which is easy to administer and fair to the producers and consumers of goods and services. In the earlier rounds of meetings, the GST Council had agreed to fix four tax slabs — 5%, 12%, 18% and 28% — while four of the so-called ‘sin goods’ as luxury cars, tobacco, pan masala and aerated drinks were to invite  cess on top of the highest slab. This cess was meant to compensate the states for the possible loss of revenue which may occur following implementation of the GST, that now looks real but not before September this year. The loss to be compensated was of the order of Rs 55,000 crore. 

After this broad consensus among the Centre and the states, we saw a huge disruptor to the economy in the form of demonetisation of Rs 500 and Rs 1,000 notes with Prime Minister Narendra Modi’s avowed objective of cleansing the system of black money, corruption and counterfeit currency. The November 8 announcement has hit almost all sectors of the economy resulting in loss of revenue for the states which mainly depend on the sales tax or value added tax that in turn is generated out of a dynamic growth engine of trade. However much Finance Minister Arun Jaitley may dismiss the loss of economic activity as mere “anecdotal,” an important revenue stream for the states has been disrupted.

But then, the answer does not lie in slapping cess over and above   the GST rates, for one of the main objectives of the GST is to subsume all the Central, state and local taxes and levies into a single, uniform rate to be charged nationwide. The moment cess is accepted, it would become the norm and the most resorted temptation for the government to raise revenue.  Look at the number of cesses the taxpayers have to pay every time they buy goods, get a service done to their cars or eat in a restaurant. Thus, imposition of cess on more number of items may be politically expedient to buy consensus on GST in a surcharged political atmosphere in the middle of elections in five states being bitterly fought, it would be a disaster for those sectors of the economy which would be subjected to additional levy. Let states be compensated from the Central exchequer now that Jaitley
says his tax revenues remain buoyant despite note ban.

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