Reports indicate that Chief Ministers and Finance Ministers from Congress-ruled states are expected to press for an 18 percent cap on the goods and service tax rate at a meeting of the GST Council, beginning October 17. The party’s rationale is that a higher rate will burden the common man and will defeat the very purpose of GST to create a common market and reduce the burden on both producer and consumer. Finance Minister Arun Jaitley has argued in the past that a cap makes little sense in the current context.
“No tariff can be perpetual. If volumes increase, it can go down. In a crisis, it can go up. None of your finance ministers (Pranab Mukherjee and P.Chidambaram) proposed it. How can we go every time to the states if we want interest rates to be raised,” he said. Jaitley has a point when he describes the Congress proposal to enshrine a cap on the GST as “preposterous”. Governments must also always strive to maximise the tax/GDP ratio so that states have enough money to invest in assets that will beget more taxes. In other words, tax levels must never be capped. The Congress party’s insistence on a GST cap is out of sync with reality.