GST: CEA Arvind Subramanian panel’s view may help end the deadlock

The Arvind Subramaniam panel is also learnt to have voted against the 1% additional tax on interstate sale of goods, proposed in the relevant Constitutional Bill in the Lok Sabha to help manufacturing states.

An expert panel led by chief economic adviser Arvind Subramanian is set to recommend a revenue-neutral rate (RNR) of 18-20% for the goods and services tax (GST) with minimal exceptions and aberrations, sources in the know told FE. The panel is also learnt to have voted against the 1% additional tax on interstate sale of goods, proposed in the relevant Constitutional Bill in the Lok Sabha to help “manufacturing states”.

The report comes at a time when uncertainty over the fate of the GST Bill persists despite Prime Minister Narendra Modi himself having sought to break the ice with theCongress, which has made three key demands for lending its support for the indirect tax reform including removal of the 1% extra tax and including the GST rate in the Constitution itself.

While the removal of the 1% tax or cutting its life from three years mentioned earlier is under the government’s active consideration, it is unlikely to specify the GST rate in the Constitution. With 100% compensation for states for the first five years of GST for any revenue loss likely, the rationale for the 1% additional tax no longer existed, officials said.

But some sources said the Congress was still undecided on to what extent it can compromise on its demands. The party’s support is essential for the passage of the Bill in the Rajya Sabha where the ruling alliance is in a minority.

CBEC chairperson Najib Shah said the report on RNR would be released for public comments soon but declined to give the specifics.

Experts said that if petroleum, real estate and liquor are kept out of GST in the initial years as proposed in the Bill passed in the Lok Sabha earlier this year, the available tax base would shrink and, hence, the combined Centre-state GST rate could be more than 20%.

Government sources said in such a scenario, the attempt would be to eventually bring down the rate as the tax base expands. A select panel of Rajya Sabha which reviewed the Constitutional Bill had suggested that the rate should not exceed 20%. Finance minister Arun Jaitley too promised that the GST rate would be much lower than the previously discussed 27%.

The Modi government will have to get manufacturing states, especially Gujarat, to accept the proposal not to have the 1% tax. Gujarat, Maharashtra and Tamil Nadu have been the most vocal about having an origin-based tax on interstate sale of goods, saying that they have attracted industrial units by investing heavily on infrastructure.

At present, Congress party leaders and former Cabinet ministers P Chidambaram, Anand Sharma and Jairam Ramesh are examining the government’s response to their demands.

The opposition party also wants a dispute resolution mechanism within the GST Council, but the view taken by the government during the UPA regime and accepted by the current leadership is that dispute resolution, which has a bearing on the essential legislative powers of the Parliament and state assemblies, cannot be subject to other structures. At best such structures can be recommendatory in nature, not statutory.

The Congress also wants inclusion of petroleum products within GST starting from the initial years, but the select panel of the Rajya Sabha did not accept the recommendation, leaving it to the proposed GST Council.


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