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REVENUE NEUTRAL RATE (RNR) WHAT WHY AND HOW

Goods and Services Tax - GST - By: - Dr. Sanjiv Agarwal - Dated:- 31-12-2015 - The golden rule for collection of tax is given by world s oldest economist Sage Kautilya alias Chanakya Muni more than 2000 years ago. He said that 'the King should collect tax from different persons as the humble bee collects honey from different flowers without making any harm to them'. Thus, all efforts should be made to keep the GST rate as low as possible. In the proposed GST regime, the revenue of the Go .....

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ate that will allow the Government to receive the same amount of money despite of changes in tax laws. In the GST regime the revenue of the government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect , or otherwise. Therefore an adjusted in tax rate is required to avoid reduction in revenue of the government. This adjusted Rate is termed as Revenue Neutral Rate (RNR). Salient Features Rate which will give at-least the same le .....

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the good indicator of future requirement in calculating the adequate compensation to both state as well as central government. For the determination of RNR, the National Institute of Public Finance and Policy had undertaken a study on Revenue Implications of GST and Estimation of Revenue Neutral Rate. NIPFP recommends that GST rate will be same as the combined central and state taxes on Goods at present but it should be lower than the combined central and state taxes on services. The sub-committ .....

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nation of RNR Present tax rates and collection in absolute numbers: Excise duty, which is levied at various rates, median rate is 12% CVD rate on import of goods Service tax rate, presently 14 % State VAT rate, varies from 0% to 20% (0, 5, 12.5, 20) Collection of the Government from these levies Broadening of tax base in GST: Excise duty may be levied on a lower base by the States. Present threshold limit under CENVAT is ₹ 1.5 crores, whereas under GST, it may be between ₹ 10 lacs an .....

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example stamp duty, property tax, toll tax, etc. might be kept outside the GST structure. The success of GST will largely depend on the determination of ideal rate at Central level as well as State level which should be acceptable to the public and revenue neutral to Government. The GST rates would be fixed after ensuring that there would be no revenue loss from the proposed changes and a normal growth is maintained. The deadlock in the passage of the GST Bill is not entirely due to opposition .....

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, compromise have to be done to only a less perfect dual GST. Even as GST is a game changer in shifting the incidence of tax from the place of origin to the place of consumption , there has to be change in the perception of looking at the Gross Domestic Expenditure as the new tax base instead of Gross Domestic Product. If the GDP or Income is unequal among the States , where is the disposable income to assume it as the tax base and proceed to estimate one s tax income ? This would lead to erron .....

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tax base, the extent of tax occupied by the multiple taxes that the States and the Centre levy in their own taxing jurisdiction has to be estimated and factored into the total tax income to arrive at a realistic GST rate . Like there is need for a dual GST , there is also perhaps a concomitant need for a dual Central and State RNR - one to be reckoned on tax to Gross Domestic Product and the other on tax to Gross Domestic Expenditure as a back room exercise to be assured of revenue neutrality i .....

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hat single rate, which preserves revenue at desired (current) levels. In practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate. 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. The RNR should be distinguished from the standard rate .....

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