GST: Panel for standard rate of 17-18%, says CEA Arvind Subramanian

NEW DELHI: A key committee set up by the government has suggested a standard goods and services tax ( GST) rate of 17%-18%, setting the stage for consensus building for this important reforms to get the crucial constitutional amendment passed in the winter session.

The standard rate is based on a revenue neutral rate of 15%-15.5% suggested by the committee headed by the chief economic advisor Arvind Subramanian.
The committee has suggested a lower rate of 12%-14% for goods that need to be taxed less.

The Congress has called for a GST rate of 18% and the committee recommendation of 17%-18% meets that condition, which will allow the government to build consensus on this key reform.

The committee has also suggested removal of 1% levy on inter-state movement, a key demand of the Congress.

This is only a recommendation and the final rate setting power at present is proposed to be vested with the GST Council, a body comprising centre and states.

The revenue neutral rate is that rate at which if all goods and services are taxed there will not be any revenue loss for both states and the centre. The standard rate, the rate at which most goods will be taxed, is more than the revenue neutral rate because some goods that are in the nature of public goods or targeted at deprived sections will need to be taxed at the lower rate.

There will be a demerit good rate that is higher than the standard rate that will apply to goods such as tobacco, the use of which needs to be discourage.
“The aim should be to create a GST with the widest possible base,” chief economic advisor Arvind Subramanian said indicating that most goods should be kept in the new tax. There is demand that petroleum and alcohol should be kept out of the levy.

The GST will replaces the plethora of indirect taxes levied on goods with a single levy, which will help create a seamless national market for delivery of goods and services.

Subramanian also was not in favour of putting the rates in the constitutional bill.