The government is reportedly looking at a goods and services tax band of 8 per cent to 26 per cent with four slabs. Multiple rates are fine, but rates individually tailored for specific commodities or sectors are not.
Non-uniform rates have worked in the EU where value-added tax rates vary across member states, and there is no reason why they cannot work in India. It will obviate the need to have too many zero-rated products under GST.

The proposal is broadly in sync with the Arvind Subramanian panel that recommended four rates — including a standard rate of 16-18 per cent — after excluding real estate, electricity, alcohol and petroleum products. However, exemptions break the GST chain and should be kept minimal. It is feasible to have a moderate standard GST as the levy creates audit trails that will help widen the tax base, reduce evasion, including of direct taxes. The current tax/GDP ratio — combined of the Centre and states — is about a modest 16.5 per cent, of which about 5.6 per cent comes from direct taxes.

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The maximum revenue to be replaced is about 6.1 per cent of GDP for GST to be revenueneutral. The Subramanian panel estimates that this can be achieved with rates that range from 9.1 per cent to 11 per cent, depending on what proportion of GDP remains as the available tax base, after assorted exemptions and transactions below taxable thresholds. A GST rate of about 12 per cent would enable the government recoup more than the current revenues.

Provided the tax base is no longer riddled with evasion and exemptions are kept to the minimum. Including large chunks of the economy in the tax base can help lower GST. It makes the case to bring petroleum products under GST compelling.

States should agree as they have been guaranteed compensation for any revenue loss during transition to the new tax system. A combination of GST at the standard rate and a sin tax component not eligible for tax credit makes sense for non-merit goods.

The point is to keep the GST chain intact. The broader the base of the tax, the lower its rate can be, and more comprehensive the database for direct taxes as well. Low, multiple rates would help achieve this goal.