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Willing to meet the Congress halfway on the goods and services tax (GST), the NDA government is weighing the option of accepting a revenue neutral rate of 18 per cent and announce it during the ongoing session of Parliament.
While the government and industry are in favour of a slightly higher rate of 20 per cent to 22 per cent for GST, the Congress has been demanding that the rate be kept at 18 per cent.
“With the proposal to subsume petroleum and tobacco products into GST at a later date under consideration, accepting a revenue neutral rate of 18 per cent is viable as these products would be taxed separately,” said a person familiar with the development, adding that an announcement to this effect would be made during the ongoing Parliament session.
Panel proposal Eighteen per cent is also what the panel headed by Chief Economic Adviser Arvind Subramanian to finalise the revenue neutral rate for GST is likely to propose.
The panel is expected to submit its report shortly.
Sources close to the development said that this would be the closest that the government is willing to go to accede to the Congress demand.
“It should not be seen as the government bending backwards on the Congress demand. While accepting the rate, the government will still not include it in the Constitutional Amendment Bill for GST but will notify it separately,” said the source.
Finance Minister Arun Jaitley has already questioned the Congress demand to include GST rates in the Constitutional Amendment Bill and said it would lead to a flawed architecture for the tax.
The Finance Ministry also plans to call a meeting of the Empowered Committee of State Finance Ministers soon to start a discussion on the revenue neutral rate.
New chairman needed “A meeting with States will have to be called soon — to appoint a new chairman (after Kerala’s KM Mani resigned) who can initiate talks on the rates,” said the source.
Experts believe that States may agree to the proposed 18 per cent tax rate provided the Centre compensates them adequately.
“I think the States can accept the rate although it would be lower than the current VAT rate of 13.5 per cent. On an average, an 18 per cent rate translates into 9 per cent at the state level. But as long as the Centre is willing to stick to its promise of compensating them for the revenue loss, there should be no problem,” said Mahesh Purohit, director, Foundation for Public Economics and Policy Research.
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