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Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, had remarked in an interview with BusinessLine that doing business in India was akin to dealing with 29 countries.
While that will definitely change with the GST regime, the relief to consumers and producers hinges on the rate that is finally decided upon for GST.
It is being touted that this rate will be arrived at in a way that compensates both the States and the Centre for the tax revenue they are currently earning through taxes that will be subsumed within the GST. While the intent is noble, achieving this is going to be quite a difficult task.
The complex task The report of the committee — set up to decide on the Revenue Neutral Rate for GST under Arvind Subramanian — clearly demonstrates the complexity of this task.
The report sets out the formula for calculating the RNR as T=R/B. T is the RNR, R is the revenues generated by the Centre and States from existing sales and excise taxes. The revenue to be replaced is arrived at using the tax collected in 2014.
The total amounts to ₹6.97 lakh crore and excludes revenues from petroleum and tobacco for the Centre, and from petroleum and alcohol for the States. Now, this is the easy part.
The difficulty arrives when calculating the ‘B’ in the formula, which is the tax base for generating the required revenue from GST. Going by our recent experience in calculating the GDP growth number — the questions raised over the way it is calculated, the data-set used to compute GDP, — arriving at the tax base is going to be an equally challenging task while calculating the RNR.
The committee has, moreover, suggested arriving at the tax base using three approaches — one, by using a macro approach that uses National Income data; two, with indirect tax turnover: and three, with direct tax turnover. There are various assumptions made to calculate each of these rates and the RNR based on the three approaches varies between 11.6-17.7 per cent.
It is clear that there is ample scope for tampering with this number and the final GST rate will have a similar reception as the new GDP number.
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