The GST Council may consider raising the lowest floor to 8%, streamlining the structure

The GST Council may consider raising the lowest floor to 8%, streamlining the structure

GST board may rationalize tax margins at next meeting

New Delhi:

The Goods and Services Tax (GST) Council at its next meeting may consider increasing the lowest tax rate to 8%, from 5% and cutting off the list of exemptions in the GST regime as it seems aimed at increasing revenue and eliminating states’ reliance on the Compensation Center, the sources said.

A panel of state finance ministers is likely to submit its report later this month to the council recommending various steps to increase revenue, including increasing the bottom line and streamlining the rate. .

Currently, GST is a four-tier structure with tax rates of 5, 12, 18 and 28%.

Essential items are either exempt or taxed at the lowest rate, while luxury and prestige items attract the highest. Luxury and sinful goods attract the highest tax at the top of the table 28%. This tax revenue is used to compensate states for revenue losses resulting from GST implementation.

According to sources, the group of ministers (GoM) is likely to propose an increase of 5% to 8%, which could bring in an additional Rs 1.50 lakh crore in annual revenue. By calculation, a 1% increase in the lowest segment, which mainly consists of packaged food items, resulted in a revenue increase of Rs 50,000 crore annually.

As part of the streamlining process, GoM is also considering a 3-tier GST structure, with rates of 8, 18 and 28%.

If the proposal passes, all goods and services currently taxed at 12% will be reduced to 18%.

In addition, GoM will also propose to reduce the number of items exempt from GST. Currently, unpackaged and unlabelled dairy and food products are exempt from GST.

The sources said the GST board is expected to meet later this month or early next month and discuss the GoM report and review the state’s revenue situation.

With the GST compensation scheme coming to an end in June, it is imperative that states are self-sufficient and not dependent on the Center to close the revenue gap in GST collection.

At the time of GST implementation on July 1, 2017, the Center had agreed to indemnify the states for 5 years until June 2022 and protect their revenue at 14% annually over revenue. of the base year 2015-16.

However, during this 5-year period due to the reduction in GST on some items, the sales neutrality ratio has decreased from 15.3% to 11.6%.

“As revenue neutrality falls and states look at a shortfall of around Rs 10,000 crore, efforts must be made to make GST revenue neutral and the only way to do that. , is to streamline tax rates and check for evasion,” one source said.

Last year, a council led by finance minister Nirmala Sitharaman and the finance ministers of the states formed a council of state ministers, headed by prime minister Basavaraj Bommai of Karnataka, to propose ways to increase revenue. revenue by rationalizing tax rates and correcting irregularities in tax rates. .

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