Latest GST Tax Rates in India – by GST council

GST Tax Rate

This was perhaps one of the most important decisions of a GST Council that were much awaited. On 3rd November 2016, tax rates were finally decided by the GST council. The tax rates are as follows;

Particulars	Rate of Tax	Remarks
Items of basic survival like food grains	‘0’ rated	50% of products covered under CPI are covered.
Items of Mass consumption	5%	NA
Standard rate	12%	NA
Standard Rate II	18%	NA
Luxury items	28%	NA

 

Apart from the above tax rates, a cess on sin and energy cess has also been approved by the GST council. The government has followed the basic economic rule of “tax the rich and spare the poor.”

Further, the tax rates have been drafted so carefully that poor will be impacted least and luxury will be taxed more, which is as per se as correct approach.

No doubt, GST tax rate will have a far-reaching impact on the economy. However, on the other side, the proposed tax rates may prove to be fatal to the government and economy and could hamper the government tax revenue and can further lead to a recession in the economy. The impact, however, can only be seen once actual results will be generated after GST implementation.

ANALYSIS ON Official Report on GST Tax rate – Revenue Neutral Rate

Deciding the GST tax rate was very similar to playing a gamble. However, proposed tax structure is a bit different from a report drafted by a committee chaired by Dr.Arvind Subramanian.

How committee took the way

The committee took the approach of Revenue Neutral Rate (RNR). Revenue Neutral Rate (RNR) refers to that single rate which maintains revenue at current levels.

Or in other words, RNR is the rate where indirect tax collection under present regime will be equal to tax collected under proposed GST regime.

Fig 1.51: Diagram explains the economics of RNR, current tax and Under GST.

As per report, the essence of calculating the RNR lies in the following equation;

T=R/B

Where t is RNR, R is equal to revenues generated under current tax structure (both centre and state) and B is the total tax base for generating the required GST revenues.

Important Points of the Report

Let us now learn some of the important points of the reports which are as follows:

• The committee was of the view that RNR should be around 15% in total (including state and centre). GST Council has adopted this recommendation. As the standard rate of GST are 12% and 18% average of which is equal to 15%.

• As discussed above, the committee recommended the use of different rates initially. The GST Council has adopted this recommendation to a certain extent. The recommended table for rates are as follows:
  

• The committee was also of the view that only a single rate should prevail in the medium term for an ideal GST implementation.

• The committee was also of the view that exemptions should be least provided under GST regime because broadening the scope of exemptions, the less effective GST will be. For example, if precious metals continue to enjoy highly concessional rates, the rest of the economy will have to pay in the form of higher rates on other goods, including essential ones.

• The Committee also recommended to eliminate all taxes on inter-state trade (including the 1 percent additional duty) and replacing them by one GST. This recommendation has already been accepted by the parliament while passing the Constitutional Amendment Bill in Rajya Sabha.

• The committee was also of the view that alcohol and real estate should be brought within the scope of the GST as it would further the government’s objectives of improving governance and reducing black money generation without compromising on states’ fiscal autonomy. Bringing electricity and petroleum within the scope of the GST could make Indian manufacturing more competitive; eliminating the exemptions on health and education would make tax policy more consistent with social policy objectives.

Conclusion

The GST rates are out, but the schedule is still not being disclosed by the government. We have to wait for the real analysis on this. For more info on GST, subscribe to our monthly magazine on GST.