GST panel recommends 12 percent goods, 40 percent in tax

The Subramanian panel’s report said: “This allocation must reflect the revenue requirements of the Centre and states so that revenues are protected. For example, a standard rate of 17 per cent would lead to rates at the Centre and states of say 8 per cent and 9 per cent respectively.”

The committee recommended that 12 per cent be set as tax on essential goods and proposed sin or demerit tax at 40 per cent to be imposed on luxury cars, aerated beverages, paan masala, and tobacco and tobacco products, among others. The report warned that choices that the GST Council makes regarding exemptions or low taxation will be critical. “The more the exemptions that are retained the higher will be the standard rate. There is no getting away from a simple and powerful reality: the broader the scope of exemptions, the less effective the GST will be,” said the report.

“For example, if precious metals continues to enjoy highly concessional rates, the rest of the economy will have to pay in the form of higher rates on other goods, including essential ones... Very low rates on precious metals would lead to a high standard rate closer to 20 per cent, that will distort the economy and add to inflationary pressures,” the report said.

The Subramanian committee has recommended a lower revenue-neutral rate than what was speculated by the media and most analysts. A revenue-neutral rate means what should be the rate of tax so that there is no loss of revenue to the exchequer when GST is imposed. “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,” said Mr Subramanian.