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GST Lessons from Singapore

iasparliament
July 11, 2018
10 days
230
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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
  1. eliminating the top rate of 28%
  2. bringing down the 18% rate by a few percentage points
  3. 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

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