THIRUVANANTHAPURAM: Finance minister Dr T. M. Thomas Isaac, a staunch Goods and Services Tax supporter, will forcefully oppose the Congress demand to cap the overall GST rate at 18 percent at the meeting of finance ministers convened by union finance minister Arun Jailtley in Delhi on July 25.
Isaac will push for a GST ‘revenue neutral rate’ (RNR) of 24 percent, a level considered high by business. However, Isaac feels it is the optimum rate, what he calls the “fair rate”. It will be for the first time that an intense debate on RNR will be held at the ministerial level.
A revenue neutral rate (RNR) is the rate at which the states and the Centre will not lose revenues as a consequence of the shift from the existing tax regime to GST. A sub-panel of the empowered committee of state finance ministers (EC) had two years ago had recommended a RNR of 27 per cent. Before that, a task force of the 13th finance commission had suggested 12 per cent, which was considered too inadequate.
The former chairman of Tax Administration Reforms Commission, Dr Parthasarathy Shome, said the best RNR would be 19.5 percent. Dr Shome’s argued that 19.5 percent was ideal as it was much lower than the existing 28 percent; which is a combination of union excise duty, value-added tax in states, purchase tax and central sales tax on inter-state movement of goods. According to Isaac, 24 percent was optimum as the average tax burden on the business community actually works out to 35 percent.
“I want state revenues to be enhanced, and for this a low revenue neutral rate like the one proposed by the Congress (18 percent) is unacceptable. I will take the fight to the last for a fair rate,” Isaac said. Further, the finance minister will also demand that the states be allowed to keep a larger share of the GST. “There seems to be a general understanding about giving states a higher share,” Isaac said.
