GST rate will be lower than speculated 27%

Finance Min­is­ter Arun Jait­ley cleared the air on the GST (Goods and Ser­vices Tax) rate. While reply­ing to the debate on the Con­sti­tu­tion Amend­ment Bill, which was sub­se­quent­ly passed by the Lok Sab­ha, he said the GST rate will be much low­er than the spec­u­lat­ed 27 per cent.

Jait­ley said nei­ther the Cen­tre nor the GST Coun­cil has giv­en this figure.

RNR (Rev­enue Neu­tral Rate) is the rate of tax at which States will not have any rev­enue loss. How­ev­er, 27 per cent RNR would mean that both goods and ser­vices will attract 27 per cent GST. The aver­age GST rate glob­al­ly is 16.4 per cent.

The rates will be decid­ed by the GST Coun­cil itself, he said. When TMC leader Sauga­ta Roy asked for a spe­cif­ic rate, the Min­is­ter said that he would not com­mit as that would lead to speculation.

“The 13th Finance Com­mis­sion had sug­gest­ed 18 per cent as a pos­si­ble fig­ure. There­fore, peo­ple sug­gest that these are large fig­ures. This fig­ure will include the entire kit­ty of tax­a­tion. That is some­thing which goes to our nat­ur­al advan­tage. This will have to be worked out,” he said.

The House approved the Bill with over two-thirds major­i­ty despite the largest oppo­si­tion Con­gress stag­ing a walk out. Now the big­ger chal­lenge before the Gov­ern­ment is to get it passed in the Rajya Sab­ha where the Gov­ern­ment is in minority.

Rules require each House to pass the Bill by the third-thirds major­i­ty. If the Bill fails to get Rajya Sab­ha nod then the Gov­ern­ment can­not take it to the joint ses­sion and will remain pending.

The Gov­ern­ment aims to imple­ment GST from April 1, 2016.

Seek­ing to address States’ con­cerns, the Finance Min­is­ter said they will be com­pen­sat­ed by the Cen­tre for five years. “Our clear under­stand­ing with the States is, in a taper­ing man­ner the loss­es incurred by the States will be ful­ly com­pen­sat­ed for five years,” he said. As per the GST struc­ture, 100 per cent com­pen­sa­tion would be pro­vid­ed for the first three years, 75 per cent for fourth year and 50 per cent for the fifth year.

AIADMK leader M Tham­bidu­rai, ques­tioned what will hap­pen if states lose rev­enue even after five years and want­ed a guar­an­tee in the pro­posed Act to com­pen­sate. To this, Jait­ley said GST Coun­cil will con­sid­er all such issues and the Cen­tre will under­write the loss.

He said con­cerns of both man­u­fac­tur­ing States (such as Maha­rash­tra, Tamil Nadu and Gujarat) and con­sum­ing States have been tak­en into account and states would stand to gain by imple­men­ta­tion of GST. The new mea­sure will also ben­e­fit min­er­al-pro­duc­ing states as well, Jait­ley said after mem­bers from Odisha ques­tioned about the fate of their states.

Source: The Hin­du Busi­ness Line