While a panel headed by former chief economic adviser Arvind Subramanian, which had estimated a revenue-neutral rate (RNR) of 15-15.5%, had suggested a range of ‘standard’ tax rate of 17-18 per cent for bulk of goods and service.
In ‘some reasonable time’ the Goods and Services Tax (GST) would principally have a two-rate structure, with the standard rate between 12% and 18% and a merit rate of 5% for scores of items of mass consumption, along with a list of exempted (nil rate) items, finance minister Arun Jaitley said on Monday. Of course, a handful of ‘luxury and sin goods’ will attract a higher rate. Reiterating that the 28% slab is ‘dying’, he said in the ongoing efforts at rate rationalisation “our next priority will be to transfer cement into a lower slab”.
Arguing that GST revenue position isn’t disappointing as it is made out to be, the minister said the targets set for the states were ‘unprecedently high’ and so ‘almost unachievable’. Jaitley’s statement on his blog indicates the government’s willingness to embrace the idea of a simpler GST structure with benign rates as most analysts expected, but also signals that the process would take a few years. Of the 1,216 commodities which are used, broadly 183 are now taxed at zero rate, 308 at 5%, 178 at 12% and 517 at 18%. Barring tobacco products, luxury vehicles, molasses, air-conditioners, aerated water, large TVs, and dish washers, all 28 items have been transferred from 28% slab to 18% and 12% slabs. Only cement and auto parts are items of common use which remain in 28% slab.
Recalling that tax incidence on some 235 items were 31% or higher during the UPA regime, Jaitley said substantial rate reductions — in monetary terms amounting to about Rs 80,000 crore a year — have already taken place from that levels in the UPA period.” “Notwithstanding the substantial tax reduction, the GST collection in the first six months of this year has shown a significant improvement as compared to the first year. The average monthly tax collected in the first year was Rs 89,700 crore compared to Rs 97,100 crore per month in the second year,” Jaitley wrote.
Explaining why the states’ GST targets (14% guaranteed over 2015-16 base) were too high, the minister said: “Thus, even when 18 months have not been finished since the launch of GST, on this day every state has a target of improving its revenue with three 14% increases compounded annually over the base year of 2015-16. This is close to a 50% being reached in the second year itself. It is almost an unachievable target. Yet, six states have already achieved it, another seven are within a striking distance of achieving it and only 18 are still more than 10% away from achieving it.”
While a panel headed by former chief economic adviser Arvind Subramanian, which had estimated a revenue-neutral rate (RNR) of 15-15.5%, had suggested a range of ‘standard’ tax rate of 17-18 per cent for bulk of goods and services, while recommending 12% for ‘low rate goods’ and 40% for demerit goods like luxury car, aerated beverages, pan masala and tobacco. Recently, Subramanian said that structure could be even simpler and Jaitley’s blog corroborates this view.