A single 15% slab by merging the 12% and 18% slab is what a panel of state ministers are considering. However, due to the growing inflation concerns they are wary of proposing an increase in the threshold rate to 8%, from 5%.
People who are familiar with deliberations said that in order to take a final call on rates and firm up its recommendations, the group of ministers (GoM) are likely to meet this week. To consider the report and the revenue status of the states, the GST council is expected to meet early next month.
In its September 2021 meeting in Lucknow, the council had set up the GoM on rate rationalisation.
Four Tier Rate Structure
In order to expand the tax base, suggest changes to simplify the rate structure and garner the required resources the group was asked to review exempt goods.
The GST has a four-tier structure, consisting of 5%, 12%, 18%, and 28% rates. For some goods such as precious metals, there are special rates, which makes the regime complex.
The revenue-neutral rate was about 15.5 per cent, when the GST was rolled out in July 2017.
Following the switch to GST, there are some losses in tax revenue. Revenue-neutral rate is the rate at which there is no loss of tax revenue for states or the Centre following the switch to GST. Because of the exemptions and reductions in rates on many goods, the peg has since dragged down to about 11.6%.
Raise Could Rake In Additional Revenue, But Time Is Not Right
If the govt is to raise the GST threshold rate from 5% to 8%, then it would rake in additional annual revenues of about Rs 1.5 lakh crore. However, the timing of the decision is not deemed fit due to the given inflationary concerns. Also, many essentials are a part of this 5% slab and raising it to 8% would increase the price of many essentials.
One of the persons said some of GoM members instead favoured a merger of the 12% and 18% slab into a common 15% levy, along with raising cess on so-called sin goods. “Most of the members agreed that a rate hike is imminent but were apprehensive of (the) timing,” an official told ET.