A tax measure to reduce taxation levels shouldn't lead to harassment of more individuals as is feared
While the central government will have to come up with a formula—for now, left to the Finance Commission—to satisfy states who feel the GST will hit their own tax receipts, the larger issues that need resolving relate to the threshold limit and dual control. While states levy VAT on firms with a turnover of R10-15 lakh, the centre doesn't levy excise duties on units who earn less than R1.5 crore in a full year. Come up with a common threshold of R25 lakh as has been suggested, and as Empowered Committee chief Sushil Modi puts it, you could have 40 lakh more traders/small industrialists getting into the tax net. There is also the issue of who is to tax the firms, the Centre or the states? Considering both will deal with the same tax base, getting two sets of taxmen to interact with firms seems asking for a backlash.
There is then the issue of the revenue neutral rate (RNR). NIPFP has been assigned the job to suggest it but the larger point is that if there are too many exemptions—both the Centre and the states have their own list of exemptions—the RNR becomes so high, the GST exercise becomes pointless. In other words, the GST process still has some way to go, at both the political and the technical levels.