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Panel suggests 16 slabs for goods and services tax
November, 14th 2014

A National Institute of Public Finance and Policy (NIPFP) team tasked with recommending a revenue neutral level for the goods and services tax (GST) has suggested as many as 16 rates, corresponding to different scenarios.

The final decision on the tax rate will be taken by the GST Council, to be constituted after the passage of a Constitutional Amendment Bill, said two government officials familiar with the deliberations on the issue. A constitutional amendment bull to introduce GST, introduced by the previous government, proposes the creation of a GST Council consisting of the union finance minister, state finance ministers, and the minister of state for revenue.

Apanel of state government ministers, known as the empowered committee, has tasked a sub-committee, consisting of central and state government officials, with devising the GST tax rate. The subcommittee is processing the NIPFP report in order to arrive at a revenue-neutral rate, the tax percentage at which there is no loss to the centre and the states after the switch to the new regime.

"There are as many as 16 scenarios in the report. These include a three rate GST, four rate GST, two rate GST, subsuming and excluding different taxes such as entry tax and central sales tax as also items such as petroleum, sugar and textiles," said an official adding that the report has been sent back by the sub-committee to NIPFP for reworking it as per latest revenue numbers available for 2012-13 or 2013-14.

This is the second report by NIPFP on the matter. It had carried out a study last year as well. The rates suggested in the latest study are 14%, 16%, 20%, 24% and 27%, marginally different from the numbers thrown by the previous one. "The empowered committee (of state government finance ministers) did not discuss the report or the rates at the meeting on Tuesday." the official said.The revenue neutral rate indicated by NIPFP in both its reports is based on tax collections in 2011-12.

At present, services are taxed by the Centre at the rate of 12% (plus cesses), goods at a standard rate of 12% (plus cesses) and concessional rate of 6%.

States have concessional rate ranging from 4-6% and standard rate ranging from 12.5% to 14.5%. There are other levies such as central sales tax, levied at the rate of 2%, that applies on sale of goods from one state to another and entry tax. The combined incidence of tax including excise, VAT and CST comes to 26.5%-28.5%.

The figure of 27% is at the midpoint of this range and a number of media reports said this had been accepted by the sub -committee of officials working on the revenue neutral rate. In a press release issued on Wednesday, industry body FICCI said a 27% rate will cripple trade and industry.

The general thinking is to have a separate rate of 1% or lower for bullion, a list of exempted items, a concessional rate and a standard rate. The GST council will decide on rates depending on the structure accepted by states and Centre and elements brought within the ambit of the GST.

Tax experts are pitching for a unified rate—identical for services and goods but also a reasonable rate for taxation of services to ensure compliance.

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