The government is giving final touches to one of the most important aspect of the proposed Goods and Services Tax (GST) — the revenue-neutral rate (RNR) — as it prepares to table the Constitution Amendment Bill for GST in the upcoming Winter Session of Parliament.

A senior official told The Indian Express that the government is considering 11 per cent and 12 per cent rate for the Centre and states, respectively, under the GST.
With the government looking at a 2016 deadline for rolling out GST, which has been touted as one of the most ambitious reform, indications are that finance minister Arun Jaitley may make an announcement regarding the same in February in the new Budget.

Meanwhile, the Cabinet note detailing the final amendments to the Constitution Amendment Bill, vital for introducing GST, has been drafted and will be circulated soon, the official added.

“After making the calculations by including petrol and octroi in the GST as opposed to the states’ demand of keeping them out, the rate that has been arrived at is 11 per cent and 12 per cent for the Centre and states, respectively,” the official said.

According to the Thirteenth Finance Commission chaired by Vijay Kelkar, the rate for both the Centre and states was set at 6 per cent, with the combined rate of 12 per cent. He further added, “We are looking at a combined RNR of not more than 24 per cent which is still very high because the GST design we are adopting is distortionary in nature. However, going forward the distortions will be gradually removed, thereby reducing the rates.”

Further, the government has completed its process of redrafting the Bill and has agreed to most of the demands made by the states including having a floor rate with bands to allow states the freedom to have a high or low tax rate.

Although it has included petrol under the GST, opposed to the states’ demand, it has allowed them to levy taxes over and above the GST on the product.

The official said that the Centre will collect taxes from traders having a turnover of over Rs 1.5 crore while the states will tax those having a turnover between Rs 25 lakh and Rs 1.5 crore.

Currently, the threshold for excise duty is annual turnover of Rs 1.5 crore and for service tax it is Rs 10 lakh. The Bill has to be approved by two-thirds majority of Parliament and ratified by 50 per cent states to be passed.

The government is looking at the GST, which will subsume most of the indirect taxes of both states and centre, as a route to improve the ease of doing business by bringing down the incidence of multiple taxes.