CEA sings Congress tune on GST

 

It  recommended a revenue neutral rate of 15-15.5 per cent. Revenue neutral rate means the rate at which there is no loss of revenue to the exchequer when the GST is imposed. This is lower than what was speculated. The panel has also backed scrapping the controversial proposal of one percent additional levy by states on the cross-border transport of goods.

 

The report may help the Modi government to bring the Congress on board to pass the  GST bill as it has met key demands of the main opposition party on tax rate and removing the one per cent additional duty on the cross-border transport of goods. 

 

However, the committee has rejected another demand of the Congress that GST rate be included in the Constitution. The proposed 17-18 per cent standard rate is national rate, comprising the sum of Central and state GST rates. How these combined rates are allocated between the Centre and states will be determined by the GST Council. “This allocation must reflect the revenue requirements of the Centre and states so that revenues are protected. For example, a standard rate of 17 per cent would lead to rates at the Centre and states of say eight per cent and nine per cent, respectively,” said the report.

 

The committee recommended that 12 per cent as the tax on essential goods and proposed a sin or demerit tax at 40 per cent to be imposed on luxury cars, aerated beverages, paan masala, and tobacco and tobacco products among others. 

 

The report warned that choices that the GST Council makes regarding exemptions or low taxation will be critical. “The more the exemptions that are retained the higher will be the standard rate. There is no getting away from a simple and powerful reality: the broader the scope of exemptions, the less effective the GST will be,” said the report. 

 

“For example, if precious metals continues to enjoy highly concessional rates, the rest of the economy will have to pay in the form of higher rates on other goods, including essential ones. Very low rates on precious metals would lead to a high standard rate closer to 20 per cent, distorting the economy and adding to inflationary pressures,” said the report.