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GST could see major overhaul; reducing tax slabs, pruning exempt list on table

  • 22 Nov 2021
  • Edukating Team
  • 54

India could be eyeing a significant revamp of the goods and services tax (GST) structure as the regime completes five years in July next year when compensation to states is set to come to an end. Tax slab restructuring and reducing exemptions could be considered in the most comprehensive makeover of the single tax that was rolled out on July 1, 2017.

The new regime may have just three major tax rates covering most of the items against four now – 5%, 12%, 18% and 28%. The recast will seek to simplify the regime as well as lift revenue.A group of ministers (GoM) headed by the Karnataka chief minister is likely to meet soon to finalise its recommendations that could be taken up at the next GST Council meeting.

At the last GST Council meeting a presentation was given on various revenue scenarios… It is for states now to see how they wish to tackle the situation post July,” said a senior government official detailing the major items on the agenda.

The Centre compensates states for loss of revenue on account of the implementation of GST for five years that ends next year. States have been worried about a significant drop in their revenues once this compensation ends.

Union finance minister Nirmala Sitharaman had recently indicated that the effective tax rate under GST had slipped from the original revenue neutral rate of 15.5% to 11.6% “knowingly or unknowingly” due to multiple rate cuts since GST rollout in July 2017.

Policymakers in states and the Centre have backed a review of the slabs to address the revenue issue.Options on the table include pruning the list of items, both goods and services, currently exempt from the tax. One option is to merge the 5% and 12% levies to create one rate, and creating a three-slab regime of the merged rate, 18% and 28%.

Discussions have been centred around how this rationalisation needs to be achieved,” an official said, adding that all options including reworking the slabs are being examined.The GoM will meet on Saturday to discuss details with its final recommendations to be taken up by the GST Council.Apart from the four key slabs, 0.25% and 3% applies to jewellery and precious metals, respectively, besides a top-up compensation cess levied on select items such as automobiles.

Many common use items have been exempted from GST, making it a complicated regime prone to classification disputes and leakages. GST is not levied on nearly 150 goods and over 80 services.The 15th Finance Commission, headed by NK Singh, in its report had also made a case for GST structure rationalisation.

Source - https://economictimes.indiatimes.com/news/economy/finance/gst-could-see-major-overhaul-reducing-tax-slabs-pruning-exempt-list-on-table/articleshow/87809543.cms

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