Recently I have come across lot of queries regarding GST from some Common people and professionals from other fields whom I met recently. I have also answered them to some extent to what I really known about the particular concept. In some cases I really don’t know the answer and also searching for the same. Let me share some few repeated questions I faced and my answers to the same & of course my suggestion to the Government!!
Q-1. Highest GST Rate of most countries are below 20% but here in India it stands 28%. Why?
Answer… (In one line) Concept of Revenue Neutral Rate (here in after referred to as RNR).
1. RNR is the rate at which our government wants to earn same revenue under GST as was in the case of our old Indirect tax structure (viz.., Excise duty, Service tax, Value Added Tax, central sales tax etc….).
2. Hence our government established a rate structure of 4 tax rates (i.e. 5%, 12%, 18%, and 28%) in order to match the old revenue generation with revenue under GST.
3. Fixation of RNR is influenced (fluctuations/increase or decrease in RNR) by various factors. Some of the most important factors are,
#Exemptions (relaxation) from paying tax to certain goods & services (given by the government). #Abatements (some Reduction in tax rates) given by government to certain goods and services. #Export Refund (I.e. Refund of taxes paid on goods/services earlier only if u do export of the same).
4.*Example – The Income of the Government (i.e. our tax) say Rs.100/-p.a., if government gives exemptions or abatement to certain goods & services, it may lead to reduces the tax revenue of the government say Rs.20/-p.a. and thereby revenue becomes Rs.80/-p.a.
# In order to compensate the revenue loss of Rs.20/- , it (the Situation) ultimately pushes the government to levy further more tax on the goods & services which are already in the ambit of Taxable.
5. So if the highest GST Rate of 28% in India simply implied that how many Exemptions, Abatements for the goods and services & Refund of taxes paid on exports are in Practice and vice versa (Just Imagine).
Since we are the end consumers of most of the goods & services we ultimately bearing the tax. At one side we are enjoying with the exempted goods/services and on the other hand we suffering huge tax on certain goods/services…
Finally in my view point, it is very illogical to simply compare GST rates of other countries with India. It definitely related with the economical view point & unlike many countries India adopted Dual GST. If other countries have low GST rate means there is no much exemptions and Abatements etc..
7. My suggestion to Government
Kindly do stop giving Exemptions, Abatements, export refunds & Remove concept of Threshold limit of turnover & composition scheme etc…. And make them to come under the ambit of regular taxable structure with some minimum tax rate with option of Input credit…and of course it will definitely lead to find more revenue income and there after government can easily reduce the Highest GST Rate to 18%-20% from 28% or further low level.
Q-2. Why there is no GST on Alcoholic liquor for human consumption, Electricity, Fuel (petrol and diesel etc…)?
1. Yes you are absolutely right. There is no GST for Alcoholic liquor, power & fuel.
2. One thing let me clarify clearly that, “If no GST means it doesn’t mean that all the taxes on those goods ceases to exist”. It is definitely not…
3. On the aforesaid products old Indirect taxes are still continuing…in fact the revenue collections from the old Indirect taxes especially on the aforesaid products are very more… If you get those into the ambit of the GST the government will suffer a huge Revenue loss… (How?)
4. One of the major incomes to the central government is collection of tax (i.e. Excise duty) from the ..Then while selling that fuel every state government is also collecting Value added tax over and above the excise duty. (Excise duty + Vat….put together will cross more than 60% tax+ cess…- we are paying for consuming fuel).
5. Likewise Liquor of human consumption is taxed by respective state governments in old Indirect tax regime… by the by In Tamil Nadu, Vat rate of Liquor for human consumption is 58%… and Similar in the case of electricity is taxed by respective state governments…
6. Since the highest rate under GST is 28%..At this time if Government wants to levy GST on liquor, it have to fix 28% GST (14%+14%) on liquor. If it does the same, it will definitely face a huge Revenue loss…
Until government finds new way of revenue generation, the aforesaid goods will continue to be taxed under the old Indirect tax regime. In fact our Government is planning to get alcohol into ambit of GST by levying additional demerit cess apart from 28% GST. Will hope for the best…
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