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GST rate could be lower than 18%, say sources

Sources in the Finance Ministry say the Goods and Services Tax (GST) rate could be lower than 18 percent, reports Nayantara Rai. 

The Chief Economic Adviser Arvind Subramanian will be presenting a recommendation by the GST panel to Finance Minister Arun Jaitley on the GST rate which was earlier stated to be anything between the 18-20 percent range.

The panel was set up to prescribe a GST rate that wouldn’t be too high for the industry and simultaneously high enough, so that states do not suffer any revenue losses.

If the GST rate is lower than 18 percent then the FinMin believes there’s a good chance of the Bill being passed in the Winter Session as the Oppostion won’t have any reason to stall it further.

Sources say the government may also rething its 1 percent manufacturing tax to ensure the low GST rate.

Speaking to CNBC-TV18, Bipin Sapra of EY says, “.. The one percent origin based tax should go away. There is no doubt about it. You ask anybody in the industry or anybody in the sector that from the policymakers’ point of view one percent is skewing up the whole GST structure and it should go. The Congress is pushing hard for it. The Select Committee had given some finding but in the long run, in the interest of GST that should go away.”

Rohan Shah, Managing Partner at ELP says that a rate of 18 percent or lower would force Opposition to approve the Bill.

Sapra adds that the concessional could be around 13-14 percent.

Below is the transcript of Bipin Sapra’s interview on CNBC-TV18.

Q: We understand that perhaps the revenue neutral rate could be 18 percent or lower. For one year now we have been hearing that perhaps it could be high, it is going to begin high at 25 percent, 20 percent; so when you hear about 18 percent or lower. Is there a certain concern that this GST will be far from being perfect, it might be more imperfect and there will be too much tinkering with the input credit?

Shah: I do not have any such apprehensions. I think the rate mechanism is a very important and fundamental mechanism in terms of the GST. We have long cribbed about the factor that there was a stage where it was spoken of as 27 percent then 23-25, and everybody has been hankering for the revenue neutral rate to be below 20 percent.

So if it is 18 and if it is even below 18, then I think it will be a very welcome sign. The key factor will then be, will that impact the revenue collections that you have and if the economic buoyancy that will follow will ensure that sufficient taxes are collected, then I do not think 18 percent will adversely impact credit or any of the other mechanisms.

Q: Why were we in the first place then hearing about 25-20 percent, when 18 percent was always possible?

Shah: There were a series of issues that were gone through. So there was one situation where at every stage they said that if there is only a single levy and a single rate, we could look at 19, we could look at 18 percent etc.

Then there was this whole issue of the state levy and the central levy and people started doing their numbers, including on the basis that a lot of people may still be out of the tax net and therefore collections would be uncertain. But in a situation where you have the three rate structure, and let us say a lot of the essentials actually go into a lower rate.

The rest of the goods are at 18 percent and then you will have some goods probably which will be at higher; cigarettes and the like, then if the collection of revenue is not impaired, and it meets what our estimates are, just because of the factor that there is a larger universe of tax payers and a greater buoyancy in the economy, then I think all of this would get belied.

There have been apprehensions on new tax, how much will we collect, and with 18 percent if we collect what we need, then that is ideal for everyone. I think that would rest all the apprehensions of the past. But in every such major tax change, you are going to have some soul searching in terms of some aspects and in this case we have soul searched the rate, but if we can pull off 18 percent, and I believe they would have done enough economic study on that. Then I think that would generally create a very good sentiment all around.

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