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Letter to BS: No such concept of revenue-neutral rate any more under GST

Revenue- neutral rate was a concept when the GST was first introduced

Business Standard 


This refers to the editorial “Fixing the GST” (December 9). In the last sentence, it has been said that now a revenue-neutral rate should be worked out. In the interest of clear thinking, I am clarifying that there is no such concept of revenue-neutral rate any more.

Revenue- neutral rate was a concept when the GST was first introduced. The idea then was to find rates of duty which would fetch same total duty as was being collected earlier. Now more than two years are over and the government is finding the collection falling short compared to the target of Rs 1.18 trillion per month. The government is not able to pay the compensation to the states where the collection fell short by 14 per cent or more. Bridging the fiscal deficit is also in view. So, the rates have to be fixed as per the new requirement. It is a floating target. There is no question of revenue -neutral rate now. Each year it may be changing till it settles down.

In all countries, the rates keep changing. Japan started with 5 per cent but now it is 10 per cent. Canada has revised the rate downwards from 7.5 per cent to 7 per cent. Germany changed rates several times. Higher requirement is the target now. There is no question of revenue- neutral rate any more. This concept is dead now, which means, no longer relevant.

The concept of revenue neutrality is different from revenue- neutral rate of duty. Revenue neutrality means that rate of duty should not be used to foster or deter industry. Industry should not have to take a decision to establish their plants only on the basis of rate of duty. This concept is supposed to be the ideal but is rarely followed.

Sukumar Mukhopadhyay via email

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First Published: Mon, December 16 2019. 21:38 IST