GST Regime: 14% Growth Rate For Compensation Is A Fair Number, Say Experts
Report card of GST Council’s meeting .
At the end of the first day of the 3-day meet, the GST Council made three key announcements:
- The Council decided financial year 2015-16 as the base year for determining compensation to states due to revenue loss once the Goods and Services Tax (GST) is implemented.
- Fourteen percent secular growth rate will be the basis for compensation over five years.
- input tax credit will be part of definition of revenue.
In an interview to BloomberQuint, L Badrinarayanan, a partner at Lakshmikumaran & Sreedharan, said the Council has taken 2015-16 as the base year as it is closest to the implementation of GST. This ensures that the Constitutional requirement of compensating the states for loss in revenue due to GST implementation is met and taking any other year or an average of last three years, it may not give one a fair value of loss due to GST; it could be a loss because of various other socio-economic factors.
The Council’s decision to keep growth rate as 14% is fair and is with the hope that GST will be an accelerator and this compensation need not be paid once states get enough revenue over a period of time.L Badrinarayanan, Partner, Lakshmikumaran & Sreedharan
Badrinarayanan also lauded the Council’s decision to include input tax credit in the definition of revenue. He explained that input tax credit is a credit allowed for the purpose of paying output tax and by including it in the definition, the Council has broadened the tax base for compensation which would be welcomed by the states.
The tax is not merely going to be based on what has been collected from the consumer but also what has been received and retained by the states because there has been a break in the credit chain. It is a fuller picture of the revenue that the state would be earning.L Badrinarayanan, Partner, Lakshmikumaran & Sreedharan
Commenting on Revenue Secretary Hasmukh Adhia’s statement that cess on tobacco, paan masala, luxury cars and clean environment cess can be used to compensate states, Badrinarayanan said it will create issues like credit, collection and levy.
Watch the accompanying video for the full interview.