Proposal of GST tax base of Rs 20 lakh cr to be discussed on Jan 7

The Centre has estimated the tax base for calculating the revenue-neutral rate (RNR) for Goods and Services Tax at Rs 20 lakh crore.

The Centre has estimated the tax base for calculating the revenue-neutral rate (RNR) for Goods and Services Tax at Rs 20 lakh crore. The RNR based on this tax base works out to be 7 per cent for states and 9 per cent for the Centre,official sources told The Indian Express.

The tax base of Rs 20 lakh crore means total output of all goods and services that would be taxed under the GST. This however doesnt include the items which are under discussion to be exempt from the GST net. The new indirect tax regime also proposes to cover sectors which are currently not taxed. Various exemptions hitherto provided are also likely to go away,which in effect would widen the tax base.

The Task force of the Thirteenth Finance Commission,submitted last month,suggests that all goods and services except the exempt list should be brought under the GST net to widen the tax base. The rationale behind the proposal is the fact that wider the base,lower would be the incidence of tax,as the tax base is inversely proportional to rates.

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Sources said the Centre has arrived at the figure by factoring in all the goods and services that it plans to tax. The Centres calculation put the figure between Rs 20 lakh crore and Rs 25 lakh crore. The tax base would be discussed in the January 7 meeting of the Empowered Committee of State Finance Ministers.

RNR is the rate that would help both states and Centre in maintaining the revenue they are earning under the current tax regime.

The tax base would help decide the list of goods and services which are to be kept under the exempt,standard and lower list and it will also help in deciding upon the threshold limit for goods and services,the sources said.

Few states have also arrived at the same figure of around Rs 20 lakh crore though Madhya Pradesh has proposed a base of Rs 15 lakh crore,which according to the Centre is too conservative and would result in higher rates.

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According to MP,few services would not be included under the GST net and after taking them out of the purview,the amount would be around Rs 15 lakh crore. According to sources,industry is comfortable with around 16 per cent rate,which would not be possible if the base is too low.

The task force of the Thirteenth Finance Commission proposed a tax base of over Rs 30 lakh crore. However,it does not seem to be a possibility because there is no clarity and consensus on inclusion of certain areas like power,transport,financial services,real estate,and natural gas among others under the GST tax base. Therefore,the Centers estimate is far from flawless GST base proposed by the Task Force. The sources said that if the tax base would be less than Rs 20 lakh crore,GST would be a non-starter as the rates would be too high in that case.