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Last Updated : Aug 18, 2016 10:57 AM IST | Source: Moneycontrol.com

GST expected at 22%: Will it upset April 1 rollout plans?

Even as the central government finally succeeded in passing the Goods and Services Tax (GST) Constitutional Amendment Bill in Parliament recently, it is learnt that the standard GST rate could be closer to 22 percent when the tax is rolled out, instead of the widely-expected figure of 18 percent.

Even as the central government finally succeeded in passing the Goods and Services Tax (GST) Constitutional Amendment Bill in Parliament recently, it is learnt that the standard GST rate could be closer to 22 percent when the tax is rolled out, instead of the widely-expected figure of 18 percent.

Sources in the government have told CNBC-TV18's Sapna Das that the current estimates being drawn out in North Block have worked out a GST rate of 22 percent that will likely be most amenable to states.

The GST, 10 years in the making, will replace almost all state- and central-level indirect taxes and levies with a single tax and the eventual rate could cause much bickering between states and the Centre.

For one, the Centre has pledged to to keep the GST rate revenue-neutral. In that, while some states that collect more taxes from high manufacturing activity could be at a loss of revenues from GST's rollout, the Centre will make good such losses through taxes it is earning from the overall GST bucket.

However, a low GST rate -- such as 18 percent, which was proposed in a report by Chief Economic Advisor Arvind Subramanian -- could lead to more tax losses for states. Subramanian's estimates were based upon assumptions that more goods will be included in the GST, leading to more overall tax collections, and that the GST rollout would lead to more tax compliance and boost government revenues.

It must be recalled that the main opposition Congress, which had fought the GST Bill's passage for some time on grounds that the GST rate be capped in the Constitutional Amendment Bill, later agreed to support it after saying it expected a GST rate no higher than 18 percent.

In a recent interview with CNBC-TV18, Kerala Finance Minister Thomas Isaac, too, had said that many states would not agree to a rate below 22 percent.

The passage of the Constitutional Amendment Bill, it needs to be ratified by at least 16 of 29 states, after which a GST Council comprising of state and centre representatives, will be set up.

It will be the job of the Council, which will be two-thirds representated by the states, to decide on the GST rate after which three GST Bills (Central GST, Integrated GST and State GST) mentioning the actual rates will be sent to Parliament and state assemblies for approval. (Unlike the Constitutional Amendment Bill, which required two-thirds majority to be passed, the other GST Bills will pass with a simple majority).

However, should the Centre insist on a lower (close to 18 percent) rate, it could upset its calculations with the states while the Congress could oppose any attempt to keep the tax rate close to 22 percent.

Any failure to pass the GST Bill during the Winter Session of Parliament/state assemblies could mean put into jeopardy the government's intended rollout date of April 1, 2017.

Further, sources told CNBC-TV18's Sapna Das that the government is also weighing whether a 2017 rollout would be advisable as five states would be going into elections next year. According to some experts, the GST's rollout could have a temporary inflationary impact on the economy.

Separately, in order to keep the inflationary impact under check, the Centre may tax essential services at the lower GST tax bracket -- the CEA's report had suggested a four-tier GST tax structure, at 6 percent (for some essential commodities etc), 12 percent (discount rate for some services), 18 percent (standard rate for most goods and services) and 40 percent (de-merit rate for luxury or tobacco products). The current central service tax rate is 15.5 percent.

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First Published on Aug 17, 2016 08:22 pm

tags #Economy

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