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GST - ARRIVING AT THAT OPTIMUM
In 1974, the celebrated American economist Arthur Laffer explained the mechanics behind “Laffer curve” arguing that an optimum level of tax rate would generate maximum revenue for the government. Increasing or decreasing this optimum tax rate will decrease the tax revenue. What Mr. Laffer failed to mention here was the near impossibility of finding that optimum level of tax rate. The GST is set to be implemented after much parliamentary ordeal. Now the GST Council is arranging meetings to decide upon the optimum tax rates to be levied. Presently, more than 25 different tax rates are levied on various goods and services across the 29 states and Centre combined. This yields a certain amount of tax revenue to the tune of Rs. 9 lakh crore and the GST Council wants to arrive at a tax rate(s) which will at least render the same amount of tax revenue, if not more. This seems to be a difficult task and Mr. Jaitely is arguing that multiple rates become necessary in an unequal society like India. Wasn t this analyzed before the centre started pitching for “One Nation, One tax”? How the GST Council fares in figuring out the way to maintaining the impossible trinity of clean GST, guaranteeing revenues for States, and fiscal discipline will play a major role in shaping our country s economy in future.

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