RNR should be in the range of 20-24%


The central government has put forth a step in the process of rolling of goods and service tax…

The central government has put forth a step in the process of rolling of goods and service tax (GST) by passing the GST Constitutional Amendment Bill in Lok Sabha with a two-third majority. There has been an eagerness in the industry to gauge the rate of GST. The revenue neutral rate (RNR) as proposed by sub-committee on rate constituted by Empowered Committee of State Finance Ministers is 26.68% (see table).

However, the finance minister has clarified in the Lok Sabha on May 6, 2015, that the RNR will be much lower than 27%. This is a welcome step for the industry. But the dilemma still remains till the time the rate is not finalised. The RNR will directly impact the profit/business of the industry, so the business world is eagerly waiting for the final RNR.

In today’s scenario, the prime focus of the Indian government is attracting more of foreign investment. Such a motive shall be accomplished only when the investors are inclined towards the beneficial rate of return for their investments for which GST rate on goods and services is a critical factor. Accordingly, the government needs to consider the GST rates applicable in the global market while settling the RNR. Currently, the GST/VAT rate around the world is in the range of 6% to 25%.

While consideration of the global parameters is important, India needs to see its economic requirements also while the fixation of the RNR takes place. The purpose of collecting taxes is for the development and growth of the economy of India. Expenditure such as hospitals, roads, infrastructure, defence, etc, are accommodated through these taxes. Hence, in order to maintain the same level of economic and social development in India, it is a requirement of the Indian government to fix the RNR which matches up the government’s revenue identical to the current tax rate structure (see table).

This implies that the cumulative duty applied on goods is 26.56% in the present scenario and 12.36% on services. Under the GST regime, the service shall also be subject to full rate of GST.

Further, various exemptions under the current scheme will also be quashed. Therefore, the tax base shall increase in totality. Accordingly, the RNR may be fixed in the range of 20% to 24%. This will fulfil the economic requirement of the government and shall also be effective from the business perspective in the industry.

(With inputs from Vimal Pruthi, senior manager, and Aayush Bhargava, assistant manager, Indirect Tax, PwC India)

The author is partner, Indirect Tax, PwC India

Source: http://www.financialexpress.com/article/fe-columnist/rnr-should-be-in-the-range-of-20-24/71508/


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