Panel takes middle path to break GST impasse

Panel takes middle path to break GST impasse

The sign of a breakthrough in the GST impasse looked imminent after a panel led by Chief Economic Adviser (CEA) Arvind Subramanian on Friday submitted its report to Finance Minister Arun Jaitley, accommodating key concerns of the Congress and suggesting a middle path on the second demand of the Opposition party.

Subramanian suggested to drop additional one per cent tax on inter-State sales over and above the GST. “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 told the reporters at a Press conference here. This was one of three key demands of the Congress and also of several States.

Though the panel suggested standard rate of 17-18 per cent as demanded by the Congress, it did not favour putting the rate of GST in the Constitutional Amendment Bill. The panel also suggested a Revenue Neutral Rate (RNR) for GST of 15-15.5 per cent.

It also suggested inclusion of alcohol and petroleum products within GST ambit, as is being demanded by the Congress.

The main Opposition party, which had blocked the GST Bill in the Rajya Sabha in the last session of Parliament, has been demanding a simple GST rate of 18 per cent and scrapping of the proposed levy of one per cent additional tax on goods. The party has also been demanding that the rate be part of the Constitution Amendment Bill.

The recommendations seem to suggest a middle-path approach in the deadlock between the Congress and the Government, which didn’t want the GST rate to be part of the Bill as it would require two-thirds majority approval of Parliament for any change in future rates for any product.

The Government wants the GST Bill to be approved in the current session of Parliament to meet the April 1, 2016, rollout deadline. “The Government will study the report of the CEA-led panel on RNR for the GST and take a view on it,” Revenue Secretary Hasmukh Adhia said.

Reacting the 18 per cent cap on the GST rate as suggested by the Congress, Finance Minister Arun Jaitley said, “I think it would result in a flawed system as it could lower duties on a host of ‘sin’ products and luxury items that should attract higher taxes.” However, Subramanian batted for a standard GST rate between 17 per cent and 18 per cent and a RNR, at which there would be no revenue loss to States or the Centre of 15-15.5 per cent.

“There are sin products such as alcohol and cigarettes that need to be taxed high. There are polluting products and there are luxury items that should attract higher taxes,” Jaitley said at the Hindustan Times Leadership Summit.

However, Minister of State for Finance Jayant Sinha said the set of numbers in the CEA report will go to the GST Council and then important policy decisions will have to be made on some of these parameters. Asked if the Government will start fresh talks with the Congress, Sinha said, “We are always in discussion and consultations with our colleagues. We are hoping very much that early next week, we will able to continue our discussion and consultations.”

The panel analysed three different methods to calculate the crucial RNR and it suggested a range of 15-15.5 per cent for the RNR rate, the standard rate at which most products are likely to be taxed was recommended at 17-18 per cent. “This was a technical exercise and we took into account methods using direct taxes, indirect taxes and an approach suggested by NIPFP,” he said.

It also provided a range for the GST rate for various products and services, from 12 per cent to 40 per cent — the higher rate being applicable for select products such as luxury cars or tobacco products. The panel excluded real estate, electricity and alcohol and petroleum products while calculating the tax rate as some States have expressed reservations against giving up tax control on the lucrative items, but the CEA panel suggested these be brought under the GST ambit soon.

Asked how practical it is to keep GST rates in the Constitution, the Minister said, “There are no rates in the Constitution for good reason. And that’s because you want to provide the legislature and the executive the ability to deal with circumstances as warranted and have the flexibility to be able to set and reset rates.”

Welcoming the CEA panel’s recommendations, leading industry body FICCI said rollout of the tax reform will add 2 per cent to India’s growth and usher in efficiency and transparency in the indirect tax regime. “The GST is expected to add about 2 per cent to our GDP and will lead to long-term benefits not only to the Government, industry or traders, but to final consumers as well. We look forward to the implementation of an optimal GST,” FICCI Secretary General A Didar Singh said.

05 December 2015 | PNS | New Delhi