A couple of weeks back, the National Institute of Public Finance and Policy (NIPFP) had given its suggestions on revenue neutral rate (RNR) for goods and services tax (GST). After the Constitutional Amendment Bill for GST has been tabled in the Parliament, NIPFP is now reworking the rate.
However, the central sales tax will be subsumed into GST plus the original states rather than manufacturing states will also have the right to levy one percent additional tax in the initial two years. Keeping all this in mind, there is a requirement for revenue neutral rate to be reworked, which NIPFP is working on and the important take away here is that this RNR is going to be much lower than what they have been suggesting so far. That is the first aspect.
Second, RNR does not mean that it will be the GST rate, it will be just a benchmark for the GST rate but industry is already raising concerns after service tax rate was hiked in this Budget, anticipating further hikes on the anvil.
The actual GST rate as and when that will be decided by the GST council – the government is trying to indicate that will not be the case primarily because of two accounts. One, the state finance ministers’ panel has already indicated that they would like to have one rate both for goods as well as for services. So if you have a larger tax base and you have a single rate, the chances of that rate being lower are much higher.
Second, the government is very clear, at least the Centre is very clear that they do not want the business to consumer chain to be burdened by higher rate and the rate increases should not be sudden. Keeping all this in mind, as the time is ripe, they will try to work out a fair and reasonable GST rate. The Chief Economic Advisor in fact just a couple of minutes back has reiterated on this.
Having said that, in terms of immediate legislative agenda, what is expected after Parliament recess, is for the GST bill to be taken up. The state governments will then have to get their act together in passing the Constitutional Amendment Bill in their state assemblies, at least half of them will have to do that and after that the central and GST Bills are likely to come up.
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