Term Direct Tax Turnover Approach under GST
Direct Tax Turnover Approach:
The details about Direct Tax Turnover Approach are explained here.
A third approach—which was described in the Thirteenth Finance Commission--is based on using income tax data which are available for about 94.3 lakh registered entities (including companies, partnerships, and proprietorships but not charitable organizations). The data are classified into 10 sectors and 75 sub-sectors. These data allow the potential base for the GST to be calculated. Unlike the indirect tax turnover approach but like the macro approach, this approach yields a combined base for goods and services, rather than separate bases for goods and services.
The profit and loss accounts provide data on value of supply of goods and services (which is equivalent to turnover) to which can be added imports of goods and services. This yields the tax base of at about Rs. 222 lakh crore in turnover terms. Deducting the exempt sectors from this base (petroleum, land component of real estate, the interest component of the financial sector, electricity, gem and jewellery, education, health, and agricultural produce) narrows the output tax base down to about Rs. 194 lakh crore.
Next, purchases are divided into 2 categories, those that reduce the base because of the availability of input tax credits and those that add to the base either because they are purchases by or from exempt sectors.13 The former include intermediate goods and services (Rs. 183 lakh crore) and capital goods (Rs. 6 lakh crore). The latter include purchases by exempt sectors (Rs. 25 lakh crore), purchases of primary goods (Rs. 11 lakh crore) and purchases from unregistered dealers Rs. 24 lakh crore). This yields an input tax base of Rs. 130 lakh crore.
Further adjustments are made to take account of the value added of firms that will fall below the exemptions threshold (removed from the taxable base); of the alcohol sector (removed from the taxable base); and the rail sector (added to the base because this sector is not part of the data set in the first place).
Putting all these together gives a potential tax base of Rs. 58.2 lakh crore, yielding a combined RNR of 11.98 per cent.
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