Now that its over to states, back end working on goods and service tax Bill is busier than ever. One of the key consideration points in finalization of GST Law is that Centre and States, jointly, should ensure an exemption free tax structure on GST. India’s current estimated loss due to exemptions stands at 2.7% of GDP.
Retaining exemptions would eventually push up GST Rate. The new tax regime should focus on seamless flow of credit, creating a in-built incentive to pay taxes. The GST Council, a collective forum of the central and state governments, will recommend the tax rates and the exemption list. It makes sense for the council to accept the Arvind Subramanian panel’s recommendation to have a standard GST rate of 17-18%, computed after excluding real estate, electricity, alcohol and petroleum products.
If at all exemptions are to exist, minimal exemptions common between centre and states. The Subramanian panel pegged the revenue-neutral rate that would recoup from GST the revenue earned from the taxes GST would subsume at 15-15.5% and suggested lower rates of 2-6% on precious metals, a 12% rate, and the highest rate of 40% for luxury cars, aerated water, tobacco and tobacco products.