Chairman of the Economic Advisory Council to the Prime Minister Bibek Debroy tells Shantanu Nandan Sharma the goods and services tax ( GST ) is still a work in progress and argues that the two extreme rate slabs — zero and 28% — should be removed. Edited excerpts from the interview:There are two ways to look at the GST. One is to build a consensus for creating an ideal GST with just one rate and every product being under it.We could have deliberated, debated and waited for such an ideal GST to emerge in 20 years. The other way to look at it is, why wait for 20 years, let us start now. We know our GST is still a workin-progress. We know, we have to improve it as we go along. So we have found the second option more pragmatic.We may still talk about the glitches, but we need to recognise that the GST Council has been a big success in terms of decision-making.The way both the Union and states are working together is phenomenal. Also, let us not forget the success in terms of the GST subsuming all sorts of erstwhile taxes and the way freight moves today.In the long run, the GST will help GDP to grow because of its efficiency gain. But that can’t happen immediately. Had there been an ideal GST with just one rate, it would have pushed the GDP up. Countries around the world have struggled for 10-20 years to achieve a near perfect VAT (value added tax). So, I feel, it was unrealistic to estimate that GST would drive GDP growth by 1-2% percentage points.The compensation was meant for persuading the state governments to agree to the GST. The states were assured that for five years the Union government would make up their revenue loss, if any. But that can’t be open-ended. After all, GST is 50:50 between the Centre and the states.So, both have to suffer in case of any revenue loss. I don’t find it tenable that the Union government will continue to bail out the states.GST is a chain. But now, companies below a threshold are out of this chain; they are hence out of the GST. Earlier, bigger companies used to buy from them. But they have stopped doing that now because if they do, they will not receive credits. By setting artificial thresholds, despite being done with the best of intentions, we closed the doors for smaller entities. The large companies are now sourcing only from large companies, or else, they are importing.GST is a tax paid by consumers, not by producers.Ideally, everyone should have been part of this process.For small and medium companies, the GST has also complicated matters because of various rates and processes.But there is another issue that most people are reluctant to talk about. Some entities which never paid taxes earlier are now forced to pay. ‘Kachi raseed’ (which is not a legal invoice) is no longer valid because one has to be in the value chain to get tax benefits. The question to be asked here is, should the only source of price competitiveness for MSMEs come from the fact that they don’t pay taxes?That is not logical.Lottery is a big revenue earner for some states.But they are not in agreement that there should be just one rate. But my view is, lottery is a lottery whether it is sold inside or outside a state.There should not be two tax rates on one item.The GST Council seems to be unanimous about bringing all goods and services under just three rates. We don’t know what those three rates could be. Sooner the GST Council agrees to converge all into three, the better. I would have been happier if there was only one rate for all items. That is an idea scenario. But we know that is not going to happen. My view is we should have three GST rates: 6%, 12% and 18%. I don’t want both the zero and 28% slabs. The moment I say 6, 12 and 18, we are probably talking about an average rate of around 14% or so. It will depend on the total numbers of items and their weightage. So, this formula will make us still lose revenue unless volumes compensate it. Earlier, the then chief economic advisor, Arvind Subramanian , did some calculations to suggest that the single rate needs to be about 17% to make GST revenue neutral.We have to recognise that there has not been any price increase because of GST, as most items of mass consumption were placed in the 0% slab. But in my view, indirect tax should be uniform. Otherwise you complicate the system. It is the job of direct tax to take care of such issues. Direct tax must vary according to your earnings.First, bring everything under the GST as soon as possible.Second, standardise the process with three rates. Third, we must seriously think of extending the GST chain to small suppliers positioning below the threshold level.