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The Union finance ministry assured business chambers on Wednesday that the intent was not to have a high rate for the proposed national goods and services tax (GST). These would be set after consulting them.
“The intent is to have a stable regime,” revenue secretary Shaktikanta Das said at a function organised by the Confederation of Indian Industry (CII). He said the GST Council, headed by the Union finance minister, would finalise the rates after consulting business representatives. The Council will also have states' representatives.
Earlier, a sub-panel of the Empowered Committee of State Finance Ministers had suggested a revenue-neutral rate of 12.77 per cent for a central GST and 13.99 per cent for state GST, totalling 26.5 per cent. This has fuelled fear of a high rate.
Combining excise duty with state-level value added tax (VAT), the current combined rate for goods comes to about 24.5 per cent. However, many states have imposed a higher VAT than the agreed 12.5 per cent. Besides, GST will have input credit.
In services, only the Centre currently imposes tax at 12 per cent. After GST, both Centre and states will impose the tax.
"The recommendation of an over 26.5 per cent GST rate is too high. The sub-panel has played extra safe, at the cost of consumers," said Sachin Menon, head of indirect tax at consultants KPMG in India.
After two marathon meetings with state finance ministers, Union minister Arun Jaitley had managed to build some sort of a consensus on Monday. The Constitution amendment Bill to facilitate rollout of GST is likely to address states’ demand to keep petroleum products outside the GST purview, for the first few years. The narrower the base of GST, the higher the rate would be.
The revenue secretary said the new tax regime would go a long way in improving the ratio of tax to gross domestic product. It had been stagnant at 10 per cent and there was a need to widen the tax space, he said.
Highlighting challenges before the finance ministry, Das said, "First, to carry forward the agenda of tax reforms in the light of the Prime Minister’s ‘Make in India’ campaign, which would strengthen the competitive advantage of India vis-a-vis other countries."
The second one was to enhance the competitiveness of our tax administration. Das said the government had proposed a separate division for dispute resolution, with dedicated officers and panels at various centres. This would contribute to reduction of litigation and hassles for stakeholders
That apart, Das said the ministry had started a process of pre-Budget consultation. Based on the prime minister’s suggestion, it would focus on a disruption-free taxation environment. He said inverted duty structures were being reviewed, wherever needed.
While business chamber representatives have met finance ministry officials, the minister's meetings with various stakeholders for pre-Budget consultations are slated for next month.
