THe Blog

December 15, 2015

Why India’s Most Important Tax Reform is Still Stuck in Parliament

In this Quartz article, Gautam Khattar explains why important GST (Good and Services Tax) reform is still stuck in Parliament. Some of the key issues include, a shift in the basis of tax collection from the origin to destination state - which disadvantages large manufacturing states - and agreement on the revenue neutral rate, which seeks to prevent losses revenue as states move over to a new regime. 


"The National Institute of Public Finance and Policy initially proposed an RNR of 26.68% after considering the current tax rates applicable on goods in India. But this has become another matter of concern since such a high GST rate would mean that India may not be a commercially feasible market for many industries, especially the goods enjoying the merit rate of taxation such as IT, food processing and the service sector.

Further, in the name of securing taxpayers’ interests against arbitrary GST rate increase by the central or state governments, the Congress party has demanded to put the cap on RNR as part of the Constitution Bill.

While this proposition sounds sensible, it limits the government’s power to tweak the GST rate in order to meet any urgent economic needs of the country.

This month, a committee led by chief economic advisor Arvind Subramanian proposed to eliminate the additional 1% levy. Also, RNR was proposed in the range of between 15% and 15.5%. On the basis of this, the standard rate of GST has been recommended at between 17% and 18%, and a lower merit rate of 12% for certain goods."


Read the entire article here.

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