Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 31-12-2015 – The golden rule for collection of tax is given by world s oldest economist Sage Kautilya alias Chanakya Muni more than 2000 years ago. He said that 'the King should collect tax from different persons as the humble bee collects honey from different flowers without making any harm to them'. Thus, all efforts should be made to keep the GST rate as low as possible. In the proposed GST regime, the revenue of the Government would not be the same in comparison with the present tax structure due to tax credit mechanism or otherwise. Therefore, an adjustment in tax rate is required to avoid reduction in revenue of the Government. Hence, the rate of tax will have to be suitably adjusted to ensure that tax revenue does not reduce. This rate is termed as Revenue Neutral rate (RNR). It is the rate at which tax revenue remains the same despite giving credit of duty paid on inputs and other factors. It is the tax
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the good indicator of future requirement in calculating the adequate compensation to both state as well as central government. For the determination of RNR, the National Institute of Public Finance and Policy had undertaken a study on Revenue Implications of GST and Estimation of Revenue Neutral Rate. NIPFP recommends that GST rate will be same as the combined central and state taxes on Goods at present but it should be lower than the combined central and state taxes on services. The sub-committee had proposed a total RNR of almost 27 percent for the dual – structure GST. While the state GST component is proposed to be 13.91% , the central GST component is proposed at 12.77 %. This rate computation work in progress and its need to be updated as per the latest figures of revenue collection. As per Dr . P. Shome the RNR rates would be fixed at little higher level to ensure that there would be no revenue loss from the proposed changes and a normal growth is maintained. Factors for Determ
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r example stamp duty, property tax, toll tax, etc. might be kept outside the GST structure. The success of GST will largely depend on the determination of ideal rate at Central level as well as State level which should be acceptable to the public and revenue neutral to Government. The GST rates would be fixed after ensuring that there would be no revenue loss from the proposed changes and a normal growth is maintained. The deadlock in the passage of the GST Bill is not entirely due to opposition in the Parliament. It is largely due to the apprehensions of the States which are , to a great extent , real. It is therefore, hard to tell between the concerns of the opposition and the States that really led to the stalling of the proceedings in the Parliament. The 13th Finance Commission wanted a perfect GST with uniform tax rates across the States and the Centre and after due compensation provided to the States. The idea of a perfect GST, however, does not appear a reality anymore. Therefor
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n tax base, the extent of tax occupied by the multiple taxes that the States and the Centre levy in their own taxing jurisdiction has to be estimated and factored into the total tax income to arrive at a realistic GST rate . Like there is need for a dual GST , there is also perhaps a concomitant need for a dual Central and State RNR – one to be reckoned on tax to Gross Domestic Product and the other on tax to Gross Domestic Expenditure as a back room exercise to be assured of revenue neutrality in real time economic mode. That will be real Revenue Neutral Rate. Recommendation of GST Rates Committee The Committee headed by the Chief Economic Adviser on GST rates has submitted its reports to the Ministry of Finance on 3 December 2015. It has recommended the Revenue Neutral Rate (RNR) in the range of 15 percent to 15.5 percent (combined rates for centre and states) with a preference for the lower end of the range. According to the report, the term revenue neutral rate (RNR) will refer to
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d finally also because the prerogative of deciding the precise numbers will be that of the future GST Council, this Committee has chosen to recommend a range for the RNR rather than a specific rate. For the same reason, the Committee has decided to recommend 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. On the RNR, the Committee s view is that the range should between 15 percent and 15.5 percent (Centre and states combined) but with a preference for the lower end of that range based on the analysis in this 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
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