The National Institute of Public Finance and Policy study says the government can rationalize rates without losing revenue.
According to a national institute, the government has rationalized the GST rate structure without losing revenue by changing the four key rates of 5%, 12%, 18% and 28% along with a three-rate structure of 8%, 15% and 30%. can. Study of Public Finance and Policy (NIPFP).
The findings of the NIPFP, an autonomous think tank backed by the finance ministry, assume significance as the GST Council has tasked a group of ministers headed by Karnataka CM Basavaraj S Bommai. To propose rationalization of tax rates And possible merger of various tax slabs by December to increase revenue.
Several rate changes since the introduction of the GST regime in July 2017 have reduced the effective GST rate from the basic revenue neutral rate of 15.5% to 11.6%, Finance Minister Nirmala Sitharaman told the last council meeting in September.
“Combining 12% and 18% GST rates with any tax rate less than 18% can result in revenue loss. Our study proposes that the GST Council may consider a three-rate structure by adopting 8%, 15% and 30% for revenue neutrality,” said Sachchidananda Mukherjee, Associate Professor, NIPFP. Hindu,
The nature of change in rate also means that more than 40% of the taxable turnover value now falls in the 18% tax slab, thus any move to club that slab with a lower rate would hurt the tax kitty which What needs to be offset is the marginal other remaining prime rate hikes – 5% and 28%.
Additional GST is levied at the rate of 28% on demerit items like tobacco products, automobiles and aerated drinks along with compensation cess.
If the revenue loss from merging the 12% and 18% slabs is met by increasing the rate only on demerit or sin items, the highest GST rate will have to be increased to around 38%. Alternatively, the minimum standard rate would have to be increased from 5% to about 9%.
‘Revenue leak’
Currently, the GST regime levies eight different rates including zero for essential goods and special rates of 0.25% on diamonds, precious stones and 3% on gems and jewellery. The NIPFP paper observes that these rates remain unchanged, noting that raising rates on ‘high value low volume goods’ such as precious stones and jewellery, may lead to ‘unaccounted (undeclared) transactions and hence revenue leakage’. It is possible.
Restructuring of GST rates is a timely consideration to improve revenue, Mr. Mukherjee said, adding that it was important to index the changes in the new rate structure so as to reduce costs associated with tax compliance, administration and economic distortions.
If the prevailing GST rate structure at its inception in July 2017 was restored last year, an additional GST revenue of around ₹1.25 lakh crore could have been earned in 2020-21, estimates the NIPFP paper, titled Revenue Implications of GST Rate Restructuring in India: An Analysis,
‘useful method’
“The results are indicative given the limitations of the data, but the methodology developed in this paper may be useful for any future analysis of the restructuring of the GST rate structure,” said Mr. Mukherjee.
“The GST Council may consider placing some aggregate data in the public domain to help policy research as binding data limits hinder meaningful research of the GST regime,” he said.
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