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Government Panel on GST for 17-18 Percent Rate

The recommendations of a modest rate likely to clear the way for implementation of the much-anticipated Goods and Services Tax regime

Published: 05th December 2015 04:42 AM  |   Last Updated: 05th December 2015 04:42 AM   |  A+A-

NEW DELHI: Chief Economic Advisor Arvind Subramanian-led Committee on Friday submitted its report on the most ambitious Goods and Tax Bill to Finance Minister Arun Jaitley recommending one of the major demands of the Congress to eliminate the 1 per cent tax  on the inter-state movement of goods. The committee’s other important suggestion was the standard GST rate be in the range of 17-18 per cent. The standard rate would apply to most goods and services under the new indirect tax regime.

However, the committee estimated the revenue neutral rate (RNR) of GST at 15-15.5 per cent. The revenue neutral rate is one at which if all goods and services are taxed there will not be any revenue loss for both states and the Centre. The standard rate, the rate at which most goods will be taxed, is more than RNR because some goods that are in the nature of public goods or targeted at deprived sections will need to be taxed at the lower rate.

The committee expects an uniform rate across the country. The tax will do away with a wide range of levies and taxes and introduce a single tax in its place. While a single rate on products and services will facilitate free trade across states, the GST's value-added structure will do away with the problem of cascading tax.

Speaking to reporters, Subramanian said, “Identifying the exact RNR depends on a number of assumptions and imponderables; because, therefore, this task is as much soft judgement as hard science; and finally also because the prerogative of deciding the precise numbers will be that of the future GST Council, this Committee has chosen to recommend a range for the RNR rather than a specific rate. For the same reason, the Committee has decided to recommend not one but a few conditional rate structures that depend on policy choices made on exemptions, and the taxation of certain commodities such as precious metals.”

Middle.JPGGST has remained one of the most contentious and long-winded issues in the history of India's finances with a consensus among all stakeholders perennially remaining on slippery grounds.

The main opposition party Congress, which had blocked the GST Bill in the Rajya Sabha in the last session of Parliament, has been demanding a simple GST structure and scrapping of the proposed levy of one per cent additional tax on goods. The party has also been demanding that the rate be part of the Constitutional Amendment Bill.

The committee also suggested inclusion of alcohol and petroleum products in GST, as is being demanded by the Congress. The recommendations seem to suggest a middle-path approach in the deadlock between the Congress and the government, which didn't want the GST rate to be part of the bill as it would require two-third majority approval of Parliament for any change in future rates for any product.

The government wants the GST Bill to be approved in the current session of Parliament to meet the April 1, 2016, deadline. “The government will study the report of the CEA-led committee on RNR and take a view on it,” Revenue Secretary Hasmukh Adhia said.

Jayant Sinha, Minister of State for Finance, said the set of numbers in the CEA report will go to the GST Council and then policy decisions will be made on these parameters.

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