Subramanian panel report recommends RNR for GST at 15~15.5%

Contrary to the rumours of a high GST revenue neutral rate, the recommendations from the committee headed by Chief Economic Advisor Arvind Subramanian are very reasonable. The 15~15.5 % revenue neutral rate recommendation means that at this level the tax revenue would be in line with what the government is earning at present.  The government in all probability would peg the GST rate at a rate higher than the revenue neutral rate to earn additional income which would be deployed for the development and growth of the country.

The panel has also given a practical working methodology where instead of one common rate for GST, three different rates would be applicable. It recommends a lower rate of 12 %, a standard rate of 17~18%, and a higher rate of 40%. The lower rate would be applicable on the essential goods and services like the food items. While most of the goods and services will be taxed at 17~18%, the higher rate would apply to the “sin” products like the cigarettes, aerated products, paan masala, and luxury cars.

The committee disagrees with the Congress demand for capping the GST at 18%, as it feels that it will limit the freedom of the political process in the future. However, if one observes the recommendations clearly, the proposed GST is being limited to 18% in line with the Congress demand except for the 40% higher rate on sin products. Will the Congress want to favour the sin products with a tax rate less than 40% and hiking the lower rate to a value above 12% to balance it out, remains to be seen?

The Subramanian panel report has very wisely cleared the decks for a political consensus on GST by agreeing with demands put forth by the Congress. The panel very clearly recommends that the government drop the proposed additional 1% tax on inter-state sales – a key Congress demand. The committee also recommends bringing the alcohol and petroleum products under the GST scope – again a demand from Congress.

With such a favourable response coming from the Subramanian committee towards the Congress demands, it remains to be seen how Congress would react to the report in the Parliament. The political motivations of the Congress would now become clear to the general public in the country, if it still decides to oppose the GST bill in the Rajya Sabha.

A Congress strategy rumoured to be doing the rounds indicates that Congress wants the GST to come in 2017. Due to an increase in taxation for the first two years the goods and services become expensive and the inflation shoots up. This will go against the Modi led BJP government which will thus face the brunt of the public in the 2019 elections. The fruits of the GST bill will start coming from 2019 onwards which will then be reaped by the Congress which it assumes will be in power then.

Whatever it is, with such good recommendations from the Subramanian panel report, time has come for the parties to rise above the political bickering and pass the GST bill in the winter session of the Parliament.

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