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GST Revenue Neutral Rate
The committee on the goods and services tax headed by Chief Economic Advisor Arvind Subramanian on Friday recommended a revenue neutral rate range of 17-18 percent for the proposed Goods and Services Tax (GST).
The committee on the goods and services tax headed by Chief Economic Advisor Arvind Subramanian on Friday recommended a revenue neutral rate range of 17-18 percent for the proposed Goods and Services Tax (GST). The revenue-neutral rate is that single one that "would preserve current revenues", that is, at which there will be no loss to both state and central governments.
"The revenue neutral rate is a range and the committee suggests it as between 15 percent and 15.5 percent," Subramanian said after a presentation of the report submitted to Finance Minister Arun Jaitley. The range for the key standard rate will vary between 17 percent to 18 percent, depending on the choices made on (tax) exemptions and how precious metals are taxed, he said.
“The key standard rate will translate into a structure of rates...a low one of 12 percent, as well as a high rate of 40 percent for things like luxury products," he added. Revenue neutral rate is the tax rate that allows the government to receive the same amount of money despite of changes in tax laws.
In the GST regime the revenue of the government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect , or otherwise. Therefore an adjusted in tax rate is required to avoid reduction in revenue of the government. This adjusted rate is termed as Revenue Neutral Rate (RNR). It is the rate at which tax revenue will remain same, despite allowing input tax credit and other factor, according to onlinegst.in.
In the process of determining the tax rate various facts, figures and factors are taken into consideration before arriving at revenue neutral rate. It is the good indicator of future requirement in calculating the adequate compensation to both state as well as central government.
For the determination of RNR, the National Institute Of Public Finance And Policy had undertaken the study on Revenue Implications of GST and Estimation of Revenue Neutral Rate . NIPFP recommends that GST rate will be same as the combined central and state taxes on Goods at present but it should be is lower than the combined central and state taxes on services, adds onlinegst.in.
