CEA-led committee suggests GST rate of 17-18 per cent

NEW DELHI: A key government committee has suggested a standard goods and services tax (GST) rate of 17-18%, increasing chances of a consensus on the key reform so that the constitutional amendment that it entails can get passed in the current winter session as the clock ticks down to the April 1 deadline.

The standard rate, typically that at which most goods and services will be taxed, is based on a revenue-neutral rate of 15-15.5% as suggested by the committee headed by Chief Economic Advisor Arvind Subramanian.

“The submission of the report is one more step in the direction of our administrative preparedness to implement GST,” Economic Affairs Secretary Shaktikanta Das said.

“The finance ministry will go through the report as also will state governments. We all know that GST will add to the GDP of the country,” said Das. The government wants to launch GST on April 1, 2016.

ET had reported on November 24 that the Subramanian panel may suggest a GST rate of 18% or lower. Tax experts and industry welcomed the recommendations.

“The RNR (revenue-neutral-rate) committee has now recommended a standard rate of 17-18%. This is quite a stunning development,” said Vivek Mishra, leader, indirect tax, PwC India.

“The industry has been looking forward to this report and puts to rest the taxpayers’ anxiety on the expected rates and many other issues relating to ..

The committee that presented its findings on Friday has suggested a two-rate structure, while calling for a unified one in the medium term — a concessional rate of around 12% for goods that need to be taxed at low rates and the standard rate of 17-18%. It has also recommended a steep 40% “sin/demerit” rate for luxury cars, aerated beverages, paan masala, tobacco and tobacco products. The committee said this structure will have minimal inflationary consequences. “Facilitating easy implementation and taxpayer compliance at an early stage — via low rates and without adding to inflationary pressures — will be critical,” it said. Subramanian said GST was a critical reform initiative.

“The country has a historic opportunity with GST. It will strengthen the country’s tax institutions, get rid of barriers within states and create a common market,” he told reporters after submitting the committee’s report.

ET had reported on November 24 that the Subramanian panel may suggest a GST rate of 18% or lower. Tax experts and industry welcomed the recommendations.

“The RNR (revenue-neutral-rate) committee has now recommended a standard rate of 17-18%. This is quite a stunning development,” said Vivek Mishra, leader, indirect tax, PwC India.

The industry has been looking forward to this report and puts to rest the taxpayers’ anxiety on the expected rates and many other issues relating to the GST regime,” Federation of Indian Chambers of Commerce and Industry secretary-general A Didar Singh said.

The committee’s recommendation is in line with the views of the opposition Congress party, which has called for a GST rate of 18%. This will help ease Prime Minister Narendra Modi’s efforts to reach an accommodation with Congress and improve the prospects of a parliamentary accord, without which rolling out GST will be impossible.

The committee has also backed the Congress demand for dropping the proposed 1% levy on inter-state sales. It has, however, rejected the demand that the rates be written into the Constitution. This is something the Congress has sought.

“The credibility of the macroeconomic system as a whole is undermined by constitutionalising a tax rate or a tax exemption. Setting a tax rate or an exemptions policy in stone for all time, regardless of the circumstances that will arise in future, of the macroeconomic conditions, and of national priorities may not be credible or effective in the medium term,” it said.

As a compromise, the government favours including any cap in the GST law instead that can be more easily amended if needed. GST has been stuck because of Congress’ opposition in the Rajya Sabha, where the ruling National Democratic Alliance does not have a majority.

ET had reported on Thursday that a consensus on GST may be imminent. “We are hoping very much that early next week we will able to continue our discussion and consultations,” Minister of State for Finance Jayant Sinha said, welcoming the report. The only worry in the rates is the high rate suggested for the “sin/demerit” goods that could cover all luxury items.

“We would have to see how wide is the definition of luxury goods. If the definition is rational and not too wide, an 18% standard rate would really be excellent. This would truly create a strong demand for implementation of GST at the earliest,” PwC’s Mishra said.

The rates have not factored any buoyancy in growth from the levy, which according to some estimates may lift GDP by as much as two percentage points. Real estate and alcohol have also been kept out of the calculations. The committee’s proposals are recommendatory.

The GST Council, comprising representatives of the Centre and the states, will have the authority to set the rates. If more goods are kept at the lower rate, then the standard rate will need to go up to ensure there is no revenue loss. The lower rate is meant for those items that are in the nature of public goods or targeted at deprived sections.

The rates suggested are national rates, comprising the sum of central and state GST rates, and will have to be allocated between the Centre and states by the GST Council.

The revenue neutral rate is that at which there will not be any revenue loss for states and the Centre if all goods and services are taxed. “The aim should be to create a GST with the widest possible base,” Subramanian said, indicating that most goods should be kept within the purview of the new tax. There have been demands from states that petroleum and alcohol should be kept out as tax revenues on these are high.

GST will replace the plethora of indirect taxes levied on goods with a single levy, which will help create a seamless national market for delivery of goods and services. The committee has called for reducing exemptions and suggested that instruments such as direct transfers be used to meet their objectives.

One Reply to “CEA-led committee suggests GST rate of 17-18 per cent”

  1. sreenu bolisetty says:

    when the rate of tax is low then the revenue is more to the government
    All people satisfied with lower rate of tax
    It is depends on demand theram

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