Arvind Subramanian Panel for Capping GST Rate at 17-18%

A panel headed by Chief Economic Adviser Arvind Subramanian has recommended  a standard rate of 17-18 per cent under the proposed goods and services tax (GST). The panel on Friday submitted its recommendations to Finance Minister Arun Jaitley.

The panel's recommendations could help break the political deadlock on the GST Bill. It has backed scrapping a controversial proposal of a 1 per cent additional levy by states on the cross-border transport of goods, which the Congress party has opposed.

The report comes at a time when there is uncertainty over the fate of the GST Bill despite Prime Minister Narendra Modi reaching out to the leaders of the Congress, which has made three key demands for lending its support for the tax reform.

The Congress wants 1 per cent additional levy on inter-state sale of goods to go, a cap of 18 per cent on the GST rate and an independent dispute redressal mechanism.

Saloni Roy, senior director at Deloitte, said that the suggested standard rate of GST of around 17-18 per cent appears to be a modest rate for manufacturers who currently suffer the levy of central excise duty at 12.5 per cent as well as state levies which may be as high as 14.5 per cent to 15 per cent.

However, at this rate, services are likely to become more expensive, as the difference between the current rate of service tax and suggested rate of GST is significant, she added.

The panel suggested a 40 per cent GST rate for luxury goods and tobacco at the higher-end and 12 per cent at the lower-end for essential goods.

The panel is not in favour of putting the GST rate in the constitutional amendment bill.

The panel also suggested a revenue neutral rate of 15-15.5 per cent. A revenue-neutral rate means no revenue loss to the Centre or the states.

The GST regime is expected integrate the country into a common market by removing barriers across states. The new tax regime would replace existing levies such as excise duty, service tax and value-added tax (VAT).

A successful implementation of the GST regime could reduce business costs and also boost government revenue. But a moderate GST rate is considered key for the successful implementation of new tax regime as analysts say that an exorbitant rate may encourage tax evasion.

According to analysts, a well-designed GST could boost India's GDP growth rate by 2 per cent.

The constitution amendment bill for introduction of GST has been passed by the Lok Sabha, and is pending in the Rajya Sabha, where the ruling National Democratic Alliance does not have majority.

Briefing the media, Mr Subramanian said a final decision will now be taken by the government.