GST Rate Rationalisation: Impact on different industries and challenges in tax simplification
The issue of GST rate rationalisation has been consistently addressed with the GST Council over the last six years. Various steps have been taken and issues discussed to streamline the process. It is well-known that the Fitment Committee has been working on rate rationalisation for various goods and services, including reviewing the option of a three-slab structure. Despite the complexities arising from multiple tax rate slabs, the measures undertaken aim to simplify the previously complex tax structure.
The primary goal of rate rationalisation is not to increase government revenue but to streamline tax rates across sectors, thereby reducing the cascading effect of taxes and litigation related to tax classifications.
Impact on Manufacturing and Compliance
The manufacturing industry is broaching the subject of GST rationalisation with much fervour. The aim of the GST rate structure is to make tax systems simpler while at the same time keeping revenues neutral, which is not an easy task. In order to resolve classification challenges and relieve manufacturing sector from compliance strains, experts have proposed combining the 12% and 18% slabs and overhaul of the existing four-tiered GST rate structure of 5%, 12%, 18% and 28%.
The present inverted duty structure where input rates exceed output rates has resulted to blockage of cash flow for various industries such as textile, solar, edible oils, etc. This will also address the issue of classification for availing a beneficial rate.
