Revenue neutral rate.

Taxing procedure that allows the government to still receive the same amount of money despite changes in tax laws. The government may lower taxes for one particular group of people, but raise taxes for another group.

This allows the revenue that they receive to remain unchanged (neutral), according to investorwords.com.

A committee headed by the Chief Economic Adviser Arvind Subramanian on Possible Tax rates under the Goods and Services Tax (GST) submitted its Report to the Finance Minister recently.

It said GST is a game-changing tax reform. Domestically, it will help improve governance, strengthen tax institutions, facilitate “Make in India by Making One India,” and impart buoyancy to the tax base. It will also set the global standard for a value-added tax (VAT) in large federal systems in the years to come.

The primary objective for implementation of GST is not mobilization of additional resources but reforming of the prevalent tax structure in India. Revenue Neutral Rate, the name itself suggests the basic meaning of the term.

Revenue Neutral Rate in GST may simply be defined as the tax rate which seeks to achieve and garner similar revenue under the newly implemented tax structure as collected from taxes which are sought to be subsumed and were in force prior to the implementation of the new tax structure.

Thus, the basic objective of the Revenue Neutral Rate can described to prevent the newly implemented tax structure having negative revenue implications, writes taxguru.in.

Getting the design of the GST right is, therefore, critical. Specifically, the GST should aim at tax rates that protect revenue, simplify administration, encourage compliance, avoid adding to inflationary pressures, and keep India in the range of countries with reasonable levels of indirect taxes.

There is first a need to clarify terminology. The term revenue neutral rate (RNR) will refer to that single rate, which preserves revenue at desired (current) levels. In practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate.

It is a given single rate that gets converted into a whole rate structure, depending on policy choices about exemptions, what commodities to charge at a lower rate (if at all), and what to charge at a very high rate.