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Revenue Implications of GST Rates Restructuring in India: An Analysis

Author

Listed:
  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

Abstract

Keeping in mind the revenue needs of the governments, we assess the revenue implications of restructuring GST rates. The study builds six alternative scenarios based on various assumptions about the tax rate-wise distribution of taxable value and tax liabilities. Unlike previous studies on RNRs, the present study relies on aggregate tax information as captured through GSTR-1. In line with data available from the GSTN database, the study considers only domestic component of GST collection (i.e., CGST, SGST and IGST- domestic component). Our study estimates merger of 12 and 18 per cent tax slabs into 15 per cent and estimates tax rates required to achieve revenue neutrality. The results show that merging 12 per cent and 18 per cent tax rates into any tax rate lower than 18 per cent may result in revenue loss. Based on various estimates, the study proposes that to compensate the revenue loss, the GST council may consider three rate structure of GST by adopting 8 per cent, 15 per cent and 30 per cent and it may help achieve revenue neutrality. In all scenarios, we assume that status quo in special rates will be maintained.

Suggested Citation

  • Mukherjee, Sacchidananda, 2021. "Revenue Implications of GST Rates Restructuring in India: An Analysis," Working Papers 21/358, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:21/358
    Note: Working Paper 358, 2021
    as

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    File URL: https://nipfp.org.in/media/medialibrary/2021/11/WP_358_2021.pdf
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    References listed on IDEAS

    as
    1. R. Kavita Rao, 2008. "Goods and Services Tax for India," Macroeconomics Working Papers 22976, East Asian Bureau of Economic Research.
    2. Rao,R. Kavita & Mukherjee,Sacchidananda, 2019. "Evolution of Goods and Services Tax in India," Cambridge Books, Cambridge University Press, number 9781108473965, October.
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    Cited by:

    1. Mukherjee, Sacchidananda, 2023. "Distributional Impact of Indian GST," Working Papers 23/403, National Institute of Public Finance and Policy.
    2. Mukherjee, Sacchidananda, 2023. "Revenue Performance Assessment of Indian GST," Working Papers 23/392, National Institute of Public Finance and Policy.
    3. Tanzi, Vito, 2021. "Economic Theory Versus Economic Reality: Dealing with Pandemics and Other Global Public Goods and Bads," Working Papers 21/360, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Goods and Services Tax ; Tax Base ; Revenue Neutral Rates (RNRs) ; GST Rate Structure ; Tax Buoyancy;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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