CEA led Panel recommends RNR at 15-15.5% and eliminating Additional Tax of 1% on inter-state supply of goods
By: – Bimal jain
Goods and Services Tax – GST
Dated:- 7-12-2015
Bracing to roll out the new Indirect tax regime – Goods and Services Tax (“GST”) from April 1, 2016, the Central Government on June 17, 2015 announced the setting up of two Committees to suggest tax GST rates and to look into IT preparedness for GST.
The Government has entrusted Chief Economic Advisor, Dr. Arvind Subramanian-head of one of the two panels-with the task of proposing a Revenue Neutral Rate (“RNR”), or a rate at which there will be no revenue loss to States under the proposed GST regime.
Earlier, a rate of 27% recommended by a sub-committee of the State and Central Government officials, based on a report of the National Institute of Public Finance and Policy (“NIPFP”), was considered unacceptable and too high by the Government.
The Committee headed by the Chief Economic Adviser Dr. Ar
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d 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.
The summary of recommended options is provided in the table below:
Summary of Recommended Rate Options (in %)
RNR
Rate on precious metals
“Low” rate (goods)
“Standard” rate (goods and services)
“High/Demerit” rate or Non-GST excise (goods)
Preferred
15
6
12
16.9
40
4
17.3
2
17.7
Alternative
15.5
6
12
18.0
40
4
18.4
2
18.9
*The Committee's recommendations on rates summarized in the table above are all national rates, comprising the sum of Central and State GST rates. How these combined rates are allocated between the Center and States will be determined by the GST Council, which must reflect the revenue requirements of the Centre and States so that revenues are protected.
Following are the summarised highlights of the Executive Summary of the Report submitted by the Committee:
*
On the RNR, the
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on (for example, on gold and precious metals, and area-based exemptions) will be critical. The more the exemptions that are retained, the higher will be the standard rate;
As the table shows, very low rates on precious metals would lead to a high standard rate closer to 20%, 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%.
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A rationalization of exemptions under the GST will complement a similar effort already announced for corporate taxes, making for a much cleaner overall tax system. The rationalization of exemptions is especially salient for the Center, where exemptions have proliferated. Indeed, revenue neutrality for the Center can only be achieved if the base for the Center is similar to that of the States (which have fewer exemptions-90 products versus 300 for the Cen
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oric opportunity for India to implement a game-changing tax reform. The nation is on the cusp of executing one of the most ambitious and remarkable tax reforms in its independent history. 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.
"The report has been submitted. The department of revenue and finance ministry will go through it and put it into consultation with state governments, through mutual consultation between the state and Centre, through the empowered committee."
Shri. Shaktikanta Das, Economic Affairs Secretary
Our Comments:
We welcome and appreciate the recommendations made by the Committee. The Industry has been keenly looking forward to this report and it is expected that recommendations of a modest rate will clear the way for implement
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