‘Revenue Neutral Rate’ a.k.a RNR is a rate of GST at which there will not be any loss of collective revenue to centre and states. Estimation of correct RNR is supremely critical to GST roll out as a higher RNR would trigger sky high inflation and a lower GST rate would leave a big hole in pockets of states and centre.
While there are several ingredients to determination of a high/ low or moderate RNR a.k.a GST Rate. Broadly, the RNR for the CGST and the SGST is determined in accordance with the formula-
RNR = R/B X 100
RNR : Revenue Neutral Rate for the Centre or the States as the case may be;
R : Collection from the Central or State taxes, as the case may be, which are proposed to be subsumed in the CGST and SGST;
B: Estimated Tax base of the GST
Recently CBEC pitched for RNR of not more than 20%. However, National Institute of Public Finance and Policy (NIPFP) recommended a composite RNR of 26.68% for GST taking 2011-12 as the base year for its revenue projections but has been asked to update it with the latest (2013-14) figures of economic output. The proposed tax rate consists of two components — 12.77% central GST or CGST and 13.91% state GST or SGST.
It remains to be seen if Centre and States will shake hands on a mutually agreed RNR.