Revenue Neutral Rate (RNR)

Subject – Economy

Context – A tax burden that attacks the federal rights of States

Concept –

RNR is the rate at which tax revenue remains the same despite giving credit of duty paid on inputs and other factors.
It is the rate of tax that allows the Government to receive the same amount of money despite changes in the tax laws.
In the GST regime the revenue of the government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect , or otherwise.
- Therefore an adjusted in tax rate is required to avoid reduction in revenue of the government. This adjusted Rate is termed as Revenue Neutral Rate (RNR).
RNR is the good indicator of future requirement in calculating the adequate compensation to both state as well as central government.