GST chances brighten as panel moots lower tax rate for most goods

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Dec 04, 2015 23:50 IST
Arvind Subramanian, chief economic adviser at the finance ministry submitted on Friday promises to pave the way for the goods and services tax (GST) in Parliament.

It’s just a report at the moment. Still, what the panel led by chief economic adviser Arvind Subramanian submitted on Friday promises to pave the way for the goods and services tax (GST) in Parliament by meeting key demands of the opposition Congress party.

It recommended a standard GST rate of 17-18%, which is what the Congress has been suggesting. This is the rate at which most goods and services will be taxed under the new regime. It is based on a revenue neutral rate, at which neither the Centre nor the states will lose any money, of 15 to 15.5%.

Just as important, Subramanian suggests doing away with the 1% additional entry tax. This benefits producing states like Gujarat, Maharashtra, and Tamil Nadu, and had been a big sore point with the Congress, which has blocked the passage of the bill in the Rajya Sabha.

Revenue secretary Hasmukh Adhia was quick to react to the report on Twitter. In three different tweets sent out soon after the report was submitted to the finance ministry, Adhia said: “The most relevant rate in the report is Standard Rate and not the RNR … The government will study the report of the CEA led committee on RNR for GST and take a view on it.”

Once kicked in, the GST will subsume several state levies such as excise, service tax and value-added tax, into a single tax. It is widely expected to give a fillip to trade and commerce and increase the rate of GDP growth by 2%.

The report proposes a three-tier structure, in which certain essential goods will be taxed at 12%, the lowest, while “demerit goods” such as luxury cars, aerated beverages, pan masala and tobacco products at 40%. All other goods and services will get taxed at the standard rate of 17-18%.

Subramanian also wants to broaden the GST base by including petroleum, electricity and real estate.

The final rate will be decided by the GST Council, a representative body made up of the Union finance minister and finance ministers of all the states. This council can be constituted only after the Constitution amendment bill is passed by Parliament.

“The CEA’s strong reservations on the 1% additional origin tax in the present form provides an opportunity for the government to revisit this and address the industry’s concerns,” said Harishanker Subramaniam, national leader, indirect tax, with audit and consultancy firm EY India.

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