Sources said that the GST Council at its meeting next month is likely to consider a proposal to do away with the 5 per cent slab by moving some goods of mass consumption to 3 per cent and the remaining to 8 per cent categories. This comes as states are now on board to raise revenue as they do not have to depend on the center.
As of now, GST is a four-tier structure of 5, 12, 18 and 28 per cent. Besides, gold and gold jewellery attract 3 per cent tax.
List of items like unbranded and unpacked food items are in the exempt list, which do not attract the levy.
As per the sources by moving some of the non-food items to 3 per cent slab, in order to augment the revenue, the Council may decide to prune the list of exempt items.
Final Call to Be Taken By GST Council
A final call on whether to raise the 5 per cent slab to either 7 or 8 or 9 per cent, will be taken by the GST Council which comprises finance ministers of both Centre and states.
For the 5 per cent slab, which mainly includes packaged food items, every 1 per cent increase would roughly yield an additional revenue of Rs 50,000 crore annually.
Though there are various options under consideration, the Council is most likely to settle for an 8 per cent GST (Goods and Services Tax) for most items that currently attract 5 per cent levy.
Under the GST, the luxury and demerit items attract the highest tax whereas the essentials are either exempted or taxed at the lowest rate. The highest 28 per cent tax slab is attracted by luxury and sin goods. This cess collection is used to compensate states for the revenue loss due to GST roll out.
No Extension By Centre to GST Compensation Regime
The GST compensation regime shall come to an end in June and hence it is imperative that the States become self-sufficient and not depend on the Centre for bridging the revenue gap in GST collection.
In order to suggest ways to augment revenue by rationalising tax rates and correcting anomalies in the tax structure, last year the Council had set up a panel of state ministers, headed by Karnataka Chief Minister Basavaraj Bommai.
The group of ministers is likely to finalise its recommendations by early next month, which will be placed before the Council in its next meeting, likely by mid-May, for a final decision.
Centre during the time of GST implementation on July 1, 2017 agreed that the states shall be compensated for the period of 5 years, which is till June 2022 and also to protect the revenue at 14 per cent per annum over the base year revenue of 2015-16.
Over the years, the GST council has often succumbed to the demands of the trade and industry and lowered tax rates. This includes the number of goods attracting the highest 28 per cent tax coming down from 228 to less than 35.
Now that the centre has decided that it will stick to the stand of not extending the GST compensation further, the states have realized that they have to raise revenues through higher taxes as it is the only option before the Council.
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