Final GST rate may be as low as 15%
After the main Opposition Congress’s demand for capping the goods and services tax (GST) at 18% and including it in the Constitution Amendment Bill was brushed aside in the finance ministers’ meeting on Tuesday, the question being asked by many is: Which way would the standard rate of the unified indirect tax now go?
Most economists believe that even with no cap the GST rate may remain around 18% and could even fall below it if the existing low tax rates of some items are raised and a few excluded products are included.
Satya Poddar, tax partner – policy advisory group, EY, said the standard rate could go down to as low as 15% if it was applied on a comprehensive basis.
“In my view, the standard rate could be as low as 15%. Today, gold and silver is taxed at 1-2%. If they are taxed at the same rate as food, clothing and beverages at 12% then the upper rate need not be more than 13-14% but if you cannot do that then it may well become 15-16%,” he said.
The Arvind Subramanian report on GST, brought out in December last year, has recommended a revenue-neutral rate (RNR) of 15-15.5%, with a standard rate of 17-18%.
The report has split the rate into three slabs with essential goods taxed at 12%, demerit items like luxury cars, aerated beverages, pan masala and tobacco products at 40% and the rest at a standard rate of 17-18%. It has proposed all services to be taxed at the standard rate of 17-18%.
Amit Kumar Sarkar, partner and leader – indirect tax, Grant Thornton, expects the GST rate to be 17-18%.
He said there were enough “checks and balances” in the democratic system to keep the rate from spiralling too high.
“If there is a very high tax structure, the ruling party will lose in the next election. The public will not spare it. There are already checks and balances in a democratic system so you don’t need to have caps in the Constitution,” said Sarkar.
According to him, raising the tax rate of gold and silver “statistically” made sense but it would not be “practical”.
“To charge a higher rate of tax on gold will immediately aggrieve traders, jewellers and could lead to smuggling in the domestic market. Any move to charge a higher rate could prove counterproductive. So while statistically it makes sense, practically it makes no sense in the context in which an Indian typically buys gold,” he said.
Poddar said the standard rate would also depend on the exemption threshold for dealer and inclusion of products such as biscuits, tea and coffee on which there is no excise duty today. According to him, fully taxing health and education services could also further push down the rate.
He was also categorical that whatever rate is imposed by the states and the Centre should be cleared in Parliament and not done through an executive order.
“There is should be no cap but whatever the tax rate is to be imposed should be explicitly voted upon by Parliament. The reason Parliament has to debate and approve a tax law is because they (the government) are imposing a burden on taxpayers and it amounts to confiscation of their personal property and the amount of money taken away from them (taxpayers) depends not only upon the law but the rate at which it is applicable,” he cautioned.