GST Council may do away with 5% rate; move items to 3% & 8% slabs


With most states looking to increase revenue so that they do not have to depend on the Center for compensation, the GST Council in its meeting next month may consider a proposal to do away with the 5 per cent slab by largely shifting certain items. Sources said the consumption is up to 3 per cent and the rest to 8 per cent.

Presently, there is a four-tier structure of GST of 5, 12, 18 and 28 per cent. In addition, gold and gold ornaments attract a tax of 3 per cent.

In addition, there is an exemption list of items such as unbranded and unpacked foods that do not attract levies.

Sources said that to increase revenue, the council may decide to cut the list of exempted items by moving some non-food items to the 3 per cent slab.

While discussions are on to increase the 5 per cent slab to 7 or 8 or 9 per cent, the final decision will be taken by the GST Council comprising finance ministers of both the Center and the states, sources said.

As per the calculations, every 1 per cent increase in the 5 per cent slab, which mainly includes packaged food items, will generate an additional revenue of roughly Rs 50,000 crore annually.

Though various options are being considered, the council is likely to settle for 8 per cent GST (Goods and Services Tax) for most items, which currently attracts a 5 per cent levy.

Under GST, essential goods are either exempted or taxed at the lowest rate, while luxuries and demerit items are taxed the highest. Luxury and sin items also attract cess on top of the highest 28 per cent slab. This cess collection is used to compensate states for revenue loss due to implementation of GST.

With the GST compensation regime coming to an end in June, it is imperative that states become self-reliant and not depend on the Center to bridge the revenue gap in GST collections.

The council had last year constituted a panel of state ministers, headed by Karnataka Chief Minister Basavaraj Bommai, to suggest ways to increase revenue by rationalizing tax rates and removing anomalies in the tax structure.

The Group of Ministers is likely to finalize its recommendations by early next month, which will be placed at the next council meeting by mid-May for a final decision.

At the time of implementation of GST on July 1, 2017, the Center agreed to compensate states for five years till June 2022 and protect their revenue at the rate of 14 per cent per annum on the base year revenue of 2015-16 Was.

Over the years, the GST Council has often succumbed to the demands of trade and industry and lower tax rates. For example, the number of items attracting the highest 28 percent tax decreased from 228 to less than 35.

With the states sticking to their stand of not extending GST compensation beyond five years, states are realizing that raising revenue through higher taxes is the only option before the council.

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