GST bill: Top 10 key takeaways from CEA Arvind Subramanian panel recommendations

Dated 5th December, 2015

The Chief Economic Advisor (CEA) Arvind Subramanian-headed panel on GST sought to break the political deadlock in the Parliament between the PM Narendra Modi-led NDA government and the Congress party that is blocking a key economic reform measure from getting passed. The government wants the GST Bill to be approved in the current session of Parliament to meet the April 1, 2016, rollout deadline. The report was submitted to Finance Minister Arun Jaitley today. Subramanian said once the GST is implemented the indirect tax regime in India would be the best in emerging market economies and high income countries. He said it was a “historic opportunity to rationalise exemptions that account for Rs 3.2 lakh crore or 2.5 per cent of the GDP.” The GST, which will create a uniform market, will cover 2-2.5 million tax entities. Here are the top 10 key takeaways from the panel’s recommendations:

1. Panel suggested 17-18 per cent GST rate and dropping of the one per cent additional tax on inter-state sales.
2. The panel described GST as a historic opportunity to “Make in India by Making One India”
3. Panel opposes inclusion of GST rate in the Constitution. The Congress has been demanding GST rate be included in the Constitution. Giving rationale for non-inclusion of GST rate in the Constitution, the report said, “setting a tax rate or an exemptions policy in stone for all time, regardless of the circumstances that will arise in future, of the macroeconomic conditions and of national priorities may not be credible or effective in the medium term”.
4. Panel wants a range for revenue-neutral rate (RNR) of 15-15.5 per cent for the proposed Goods and Services Tax (GST), with a preference for the lower one.
5. Panel suggested a range of ‘standard’ tax rate of 17-18 per cent for bulk of goods and services while recommending 12 per cent for ‘low rate goods’ and 40 per cent for demerit goods like luxury car, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 per cent.
6. The report suggested that evaluation of GST implementation should not be taken over short-term period, but over longer period of time like 1-2 years.
7. It said elimination of any taxes on inter-state movement of goods would help promote Make in India and ease of doing business.
8. Observing that the current tax structure has become an ‘exemptions raj’, the CEA report said the number of cesses should be reduced.
9. The GST Council, the report said, would determine how the standard rate would be divided between the Centre and states. Giving an example, it said that a standard rate of 17 per cent would lead to rates at the Centre and states of 8 per cent and 9 per cent, respectively.
10. The panel excluded real estate, electricity and alcohol and petroleum products while calculating the tax rate as some states have expressed reservations against giving up tax control on the lucrative items, but the CEA panel suggested these be brought under the GST ambit soon. Panel recommended early inclusion of alcohol and petroleum products in GST.

(This article is published in The Financial Express on 5 Dec, 2015)