5% GST Slab May Increase To 10%; 243 More Items In 18% Slab To Earn Rs 1 Lakh Crore Tax Revenues

The Goods and Services Tax (GST) Council is planning to raise the base rate to 9-10 per cent from five per cent in bid of raising additional revenue, as per the reports from  Times of India.

How Did This Happen?

According to reports, the GST Council will discuss the option of moving 243 items to the 18 per cent slab and scrapping the 12 per cent slab.

In case this happens then there will be three GST slabs as five per cent, 18 per cent and 28 per cent.

How Will This Help?

The government is expecting that this reform in the GST structure may help raise an additional Rs 1 lakh crore in revenue, as per the report.

This change could raise the effective tax rate to 12.5-12.75 per cent from the current 11.6 per cent.

Apart from this, the officials are also considering taxing certain items that were previously exempt like treatment in ‘expensive’ private hospitals and high-value company home leases are a few examples given in the report. (Reference)

How Would This Change Affect?

Moreover, the report said that the hike in GST rates may not have a significant impact on overall inflation.

Amid the reports of the GST Council considering the rate hike, Pronab Sen, Former Chief Statistician of India said that the possible move may not help much in increasing demand or fight consumption-led slowdown.

According to Pronab Sen, an increase in GST rates may result in disruption.

He said that the problem is not with the existing rates but efficiency.

A rate increase would not be able to resolve the administrative issues with the GST that needs to be sorted. 

According to him, the 6 per cent GST rate would be applied to basic necessities at a time when consumer demand has slowed.

Considering the matter, Thomas Isaac, the Kerala finance minister on Tuesday said that Kerala will move the Supreme Court if the central government refuses to honour compensation

He said that hiking slabs now is not the right decision as in the current situation it’s not right to impose a higher burden on people. He suggested that It’s better to raise the higher slab.

Why Are They Considering This Option?

According to the report, the Centre and a few states are locked in a tussle over delayed payment of GST compensation.

 At the same time, the Central GST collection fell short of the budgeted estimate by nearly 40 per cent during the April-November period of 2019-20. 

According to Anurag Singh Thakur, the Minister of State for Finance said in Lok Sabha that the actual CGST collection during April-November stood at Rs 3,28,365 crore while the budgeted estimate is of Rs 5,26,000 crore for these months. (Reference)

It is expected that the monthly compensation bill next year could be higher than Rs 20,000 crore as the Centre will have to compensate states in case the revenue growth is below 14 per cent.