It is the tax rate that allows the government to receive the same amount of money despite of changes in tax laws. In the GST regime the revenue of the government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect , or otherwise. Therefore an adjusted in tax rate is required to avoid reduction in revenue of the government. This adjusted Rate is termed as Revenue Neutral Rate (RNR). It is the rate at which tax revenue will remain same, despite allowing input tax credit and other factor.
In the process of determining the tax rate various facts, figures and factors are taken into consideration before arriving at revenue neutral rate . RNR is the good indicator of future requirement in calculating the adequate compensation to both state as well as central government.
For the determination of RNR, the National Institute Of Public Finance And Policy had undertaken the study on Revenue Implications of GST and Estimation of Revenue Neutral Rate . NIPFP recommends that GST rate will be same as the combined central and state taxes on Goods at present but it should be is lower than the combined central and state taxes on services.
The sub committee had proposed a total RNR of almost 27 percent for the dual – structure GST. While the state GST component is proposed to be 13.91% , the central GST component is proposed at 12.77 %. This rate computation work in progress and its need to be updated as per the latest figures of revenue collection. As per Dr . P. Shome the RNR rates would be fixed at little higher level to ensure that there would be no revenue loss from the proposed changes and a normal growth is maintained .
Thou this rate will cripple the trade and industry besides burdening the consumers. The GST Counsel is empowered to take final decision on the RNR including floor rate and bands.