Tuesday, 27 September 2022

GST council planning to raise 5% tax slab to 8%

GST council planning to raise 5% tax slab to 8%

In its next meeting, the GST Council might raise the lowest tax slab to 8%, from 5%, according to a report by the PTI news agency, citing sources. A body of state finance ministers is likely to submit its information by this month's end to the Council recommend various steps to raise revenue, including hiking the lowest slab and rationalizing it.

GST is a four-tier formation attracting a tax rate of 5%, 12%, 18%, and 28%, respectively.

Key items are free or taxed at the lowest slab, while luxury and demerit items attract the highest slabs. Luxury and sin goods attracts cess on top of the highest slab of 28%. This cess collection is used to repay states for the revenue loss due to the GST rollout.

The GST agency said that the increase in tax slab from 5% to 8% may yield an additional ₹1.50 lakh annual revenues. As per calculations, a 1% increase in the lowest slab, mainly includes packaged food items, results in a revenue gain of ₹50,000 crores annually.

Further, the Group of Ministers looks to create GST, a 3-tier structure with revision of rates at 8%, 18%, and 28%, respectively.

All the goods and services currently taxed at 12% will move to an 18% slab if the proposal comes through. Besides, the ministers are also looking to add more items under the various tax slabs and remove the items exempted from GST. Currently, unbranded and unpackaged food and dairy items are exempted from GST.

With the GST repayment regime coming to an end in June, it is imperative that states become efficient and not depend on the Centre for bridging the revenue gap in GST collection.

Read More: GST collections crossed Rs 1.30 lakh crore for the fifth consecutive month

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

However, due to a reduction in GST on several items over these five years, the revenue-neutral rate has decreased from 15.3% to 11.6%.

A source said.

"As the revenue neutral rate has come down and the states stare at a shortfall of about ₹1 lakh crore, efforts have to be made to make GST revenue neutral and the only way to do it, is rationalise the tax slab and check evasion,"

The GST Council, over the years, has often succumbed to the demands of the trade and industry and lowered tax rates. For example, the number of goods attracting the highest 28% tax decreased from 228 to less than 35.

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