Committee headed by the Chief Economic Adviser Dr. Arvind Subramanian on Possible Tax rates under GST submits its Report to the Finance Minister; On the Revenue Neutral Rate (RNR), the Committee recommends the same in the range between 15 percent and 15.5 percent (Centre and states combined) with a preference for the lower end of that range based on the analysis made in the Report – Dated:- 5-12-2015 – Committee headed by the Chief Economic Adviser Dr. Arvind Subramanian on Possible Tax rates under GST submitted its Report to the Finance Minister here today. The Committee in its concluding observations has stated that this is a historic opportunity for India to implement a game-changing tax reform. Domestically, it will help improve governance, strengthen tax institutions, facilitate Make in India by Making One India, and impart buoyancy to the tax base. It will also set the global standard for a value-added tax (VAT) in large federal systems in the years to come. Following are the hig
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate. It is a given single rate that gets converted into a whole rate structure, depending on policy choices about exemptions, what commodities to charge at a lower rate (if at all), and what to charge at a very high rate. The RNR should be distinguished from the standard rate defined as that rate in a GST regime which is applied to all goods and services whose taxation is not explicitly specified. Typically, the majority of the base (i.e., majority of goods and services) will be taxed at the standard rate, although this is not always true, and indeed it is not true for the states under the current regime. Against this background, the Committee drew a few important conclusions. Because 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
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
report. On structure, in line with growing international practice and with a view to facilitating compliance and administration, India should strive toward a one-rate structure as the medium-term goal. Meanwhile, the Committee recommends a two-rate structure. In order to ensure that the standard rate is kept close to the RNR, the maximum possible tax base should be taxed at the standard rate. The Committee would recommend that lower rates be kept around 12 per cent (Centre plus states) with standard rates varying between 17 and 18 per cent. It is now growing international practice to levy sin/demerit rates-in the form of excises outside the scope of the GST-on goods and services that create negative externalities for the economy. As currently envisaged, such demerit rates-other than for alcohol and petroleum (for the states) and tobacco and petroleum (for the Centre)-will have to be provided for within the structure of the GST. The foregone flexibility for the center and the states is
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
rest of the economy will have to pay in the form of higher rates on other goods, including essential ones. As the table shows, very low rates on precious metals would lead to a high standard rate closer to 20 percent, distorting the economy and adding to inflationary pressures. On the other hand, moderately higher taxes on precious metals, which would be consistent with the government s efforts to wean consumers away from gold, could lead to a standard rate closer to 17 percent. This example illustrates that the design of the GST cannot afford to cherry pick-for example, keeping a low RNR while not limiting exemptions-because that will risk undermining the objectives of the GST. The GST also represents a historic opportunity to rationalize the tax system that is complicated in terms of rates and structures and has become an Exemptions Raj, rife with opportunities for selectivity and discretion. Tax policy cannot be overly burdened with achieving industrial, regional, and social policy
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ntre and states of say 8 percent and 9 percent, respectively. The Committee considers that there are sound reasons not to provide for an administration-complicating band of rates, especially given the considerable flexibility and autonomy that states will preserve under the GST (including the ability to tax petroleum, alcohol, and other goods and services). Implementing the GST will lead to some uncharted waters, especially in relation to services taxation by the states. Preliminary analysis in this report indicates that there should not be large shifts in the tax base in moving to the GST, implying that overall compensation may not be large. Nevertheless, fair, transparent, and credible compensation will create the conditions for effective implementation by the states and for engendering trust between the Centre and states; The GST also represents a historic opportunity to Make in India by Making One India. Eliminating all taxes on inter-state trade (including the 1 percent additional
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ther taxes or countenancing a slightly higher deficit-that would be worth considering. Finally, the report has presented detailed evidence on effective tax burdens on different commodities which highlights that in some cases they are inconsistent with policy objectives. It would be advisable at an early stage in the future, and taking account of the experience of the GST, to consider bringing fully into the scope of the GST commodities that are proposed to be kept outside, either constitutionally or otherwise. Bringing alcohol and real estate within the scope of the GST would further the government s objectives of improving governance and reducing black money generation without compromising on states fiscal autonomy. Bringing electricity and petroleum within the scope of the GST could make Indian manufacturing more competitive; and eliminating the exemptions on health and education would make tax policy more consistent with social policy objectives. There is a legitimate concern that p
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =