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Indian Committee Recommends 15 Percent RNR GST Rate

by Mary Swire, Tax-News.com, Hong kong

08 December 2015


A Committee tasked with proposing a revenue-neutral rate (RNR) for India's proposed goods and services tax (GST) regime has recommended a rate in the region of 15 percent to 15.5 percent, in a report submitted on December 4.

The executive summary to that report said: "Getting the design of the GST right is… critical. Specifically, the GST should aim at tax rates that protect revenue, simplify administration, encourage compliance, avoid adding to inflationary pressures, and keep India in the range of countries with reasonable levels of indirect taxes."

"There is first a need to clarify terminology. The term revenue-neutral rate will refer to that single rate, which preserves revenue at desired (current) levels. In practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate. It is a given single rate that gets converted into a whole rate structure, depending on policy choices about exemptions, what commodities to charge at a lower rate (if at all), and what to charge at a very high rate. The RNR should be distinguished from the 'standard' rate defined as that rate in a GST regime, which is applied to all goods and services whose taxation is not explicitly specified. Typically, the majority of the base (i.e., majority of goods and services) will be taxed at the standard rate, although this is not always true, and indeed it is not true for the states under the current regime."

The eventual structure of the GST regime will be decided by the GST Council, representing the center Government and states.

While putting forward several additional rates in its recommendations, the report said, in line with growing international practice and with a view to facilitating compliance and administration, India should strive toward a one-rate structure as the medium-term goal.

TAGS: compliance | tax | value added tax (VAT) | India | goods and services tax (GST) | tax rates | inflation | services

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