Chennai

Union Finance Minister Nirmala Sitharaman on Thursday said that the goods and services tax (GST) rate is much below the revenue neutral rate (RNR), originally suggested at 15.3 per cent, which means less burden on taxpayers. 

The current average GST rate has decreased to 12.2 percent as of 2023, much below the revenue-neutral rate in GST, the Finance Minister said during an event organised by the Revenue Bar Association here.

The government needs to raise revenue, "but simplifying, easing, and ensuring compliance for taxpayers comes first", she said.

Her comments came ahead of the 54th GST Council meeting in New Delhi on September 9.

In an earlier post on X, the minister had said that despite the GST rate being less than the prescribed revenue-neutral rate and Covid-19 affecting the revenues, "GST collections (as a percentage of GDP) have now reached the levels they were before GST (both net and gross)".

"This demonstrates that the Centre and States, collectively, through better tax administration, are able to collect the same revenue with a lower burden on our taxpayers," she noted.

The revenue-neutral rate is the rate of tax at which the government collects the same amount of revenue even after changes in tax laws.

The Finance Minister also denied there was friction between the Centre and states, adding that "the federal structure in GST has to be respected so that both the Centre and states can work together to widen the tax base and promote developmental activities".

Ahead of the GST Council meeting on September 9, Ranjeet Mahtani, Partner, Dhruva Advisors, said that the Council has had some fully loaded meetings on the last couple of occasions. The agenda is likely to consider a range of pivotal issues including rate reduction for hybrid vehicles, life insurance premiums, and addressing the inverted duty structure in textiles and pharmaceuticals.

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"The status and position regarding compensation cess has to be deliberated upon. It is expected that clarity regarding GST on foreign branch office (related party) transactions including for airlines, shipping lines, and IT giants will be provided. Review of the taxation regime introduced in October 2023 for the online gaming sector is overdue," he mentioned.