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Indeed, 18% is a Sensible GST Rate

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Worry that this would be too low is misplaced
A panel chaired by chief economic adviser Arvind Subramanian has reportedly recommended a goods and services tax (GST) rate of 18%. This is less than half the current incidence of cascading indirect taxes on goods. The rate is also the cap that the Congress wants prescribed in the GST law. The government would do well to accept a cap as well as the two other changes the Congress wants: do away with the 1% tax on inter-state sales and resolve tax disputes among the states or between the Centre and the states through a mechanism that excludes parties to the dispute. Continuing with a tax on inter-state sales on which the buyer cannot claim an input tax credit is against the logic of GST. And it is redundant as the Centre stands ready to compensate the states for any revenue loss during the transition.
The Centre and the states must settle for an 18% rate when all taxes imposed on goods and services are collapsed into one. By subsuming most indirect taxes, GST will cut out the cascade of multiple taxes that products bear. It will make pro duction efficient and lower retail pri ces. If about 60% of the country's non agricultural output were to be taxed at 18%, that would yield taxes to the tune of 10% of GDP . Taxes on corporate and personal income along with Customs fetch 7% of GDP right now. Considering that the combined tax collections of the Centre and the states are about 17% of GDP right now, 18% would indeed be more than a revenue-neutral rate. A manufacturer will be able to claim credit for all the taxes paid on inputs, leading to audit trails that will help expand the tax base and capture swathes of tax-evaded income. This, in turn, strengthens the case for a moderate GST rate.
Globally , the average VAT rate is about 16.4%. The European Union has set the minimum standard VAT rate at 15%, even as member-states are free to set their own rates. In India, a task force set up by the Thirteenth Finance Commission had recommended a single rate of 5% for central GST and 7 % for state GST. Taking all that into account, a rate of 18% is no way too low.
The Economic Times, New Delhi, 25th Nov. 2015

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