GST State finance ministers

The committee on the goods and services tax headed by Chief Economic Advisor Arvind Subramanian on Friday recommended a revenue neutral rate range of 17-18 percent for the proposed GST.

The revenue-neutral rate is that single one that “would preserve current revenues”, that is, at which there will be no loss to both state and central governments.

“The revenue neutral rate is a range and the committee suggests it as between 15 percent and 15.5 percent,” Subramanian told reporters in New Delhi while making a presentation of the report submited to Finance Minister Arun Jaitley.

“The range for the key standard rate will vary between 17 percent to 18 percent, depending on the choices made on (tax) exemptions and how precious metals are taxed,” he said.

“The key standard rate will translate into a structure of rates…a low one of 12 percent, as well as a high rate of 40 percent for things like luxury products,” he added.

The advisor also said the committee has recommended “eliminating all taxes on inter-state trade, including the one percent additional tax”.

Subramanian said GST “will strengthen the country’s tax institutions, get rid of barriers within states and create a common market”.

“India’s GST is very ambitious. It can be the gold standard for VAT (value added tax) systems for large federal systems,” he added.

The GST Bill, which seeks to usher in a pan-Indian common market by reforming the country’s indirect tax regime, was passed in the Lok Sabha in May, but has been stuck in the Rajya Sabha, where the ruling NDA does not have a majority.

The Congress maintains that the GST rate should be capped at 18 percent in the constituional amndment bill.

Opposition parties want the government to remove the 1 percent additional tax aimed to benefit the “producing states” like Gujarat and Tamil Nadu.

Minister of State for Finance Jayant Sinha said last week that he central government is seeking a consensus on the vexed issue of levy of one percent additional tax for the proposed GST.

Meanwhile, India Inc on Friday welcomed the report of the committee on the goods and services tax headed by Chief Economic Advisor Arvind Subramanian recommending a revenue neutral rate range of 17-18 percent for the proposed GST.

“FICCI welcomes the recommendations put forth by the GST panel today (Friday). The industry has been looking forward to this report and puts to rest the taxpayers’ anxiety on the expected rates and many other issues relating to GST regime,” A.Didar Singh, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement here.

Noting GST is expected to add about 2 percent to the GDP, he said it will accrue long-term benefits not only to government, industry or traders but to the final consumers as well.

“I hope this recommendation would expedite the process of introduction of GST in India. The ruling and opposition parties can come to an agreement based on the recommendation. If the government finds the revenue collection down, GST council can revise the rate upwards any time,” said Sachin Menon, partner and head, indirect tax at international accounting firm KPMG in India.

Commenting on the report, Saloni Roy, senior director, Deloitte India said: “The suggested standard rate of GST of around 17 to 18 percent appears to be a modest rate for manufacturers who currently suffer the levy of central excise duty at 12.5 percent as well as state levies which may be as high as 14.5 percent to 15 percent.”


By Adam