CEA-led panel recommends standard GST rate of 17-18%

The chief economic advisor, Arvind Subramanian, has submitted his report on the goods and services tax (GST) to Finance Minister Arun Jaitley that outlines the scope of the ambitious reform that aims to rehaul the country's indirect code.

A panel led by Chief Economic Advisor Arvind Subramanian today submitted its report to Finance Minister Arun Jaitley that outlines the scope of the ambitious tax that aims to create a national market. "The country has a historic opportunity with the GST. 

It will strengthen the country's tax institutions, get rid of barriers within states and create a common market," Subramanian said at a press conference. The GST, now eight years in the making, has travelled a long distance, amid political bickering over the tenures of three governments and from various state governments. 

The tax will do away with a wide range of levies and taxes and introduce a single tax in its place. While a single rate on products and services will facilitate free trade across states, the GST's value-added structure will do away with the problem of cascading tax (or tax on tax). "The country has a historic opportunity with the GST. It will strengthen the country's tax institutions, get rid of barriers within states and create a common market," Subramanian said at a press conference. 

The panel said it had gone through three different methods to calculate the crucial revenue-neutral rate -- the rate at which there will be no loss to state and central governments. "This was a technical exercise and we took into account methods using direct taxes, indirect taxes and an approach suggested by the NIPFP," he said. 

The committee decided to provide a range for the GST rate for various products and services: from 12 percent to 40 percent (the higher rate being applicable for select products such as luxury cars or tobacco products, etc). However, the key revenue neutral rate suggested by the CEA panel stood at 15-15.5 percent. The standard rate for GST stood at 17-18 percent, the rate at which most products would likely be taxed. 

The panel excluded real estate, electricity and alcohol and petroleum products while calculating the tax rate, as some states have expressed reservations over giving up tax control on the lucrative items but the CEA panel suggested these be brought under the GST ambit soon. The CEA also said it was suggesting the central government do away with a proposal to levy a 1 percent inter-state tax on transfer of goods something that it had lately recommended to pacify some producing states who were seen to be suffering a loss from the tax rollout. Experts had criticised the 1 percent levy, saying it would dilute the value-added structure of the GST and would result in cascading tax.