The GST Council can abolish the 5% rate; Move items to 3% and 8% disks


With most states on board to increase revenue so they don’t have to rely on compensation from the center, the GST Council at its meeting next month is likely to consider a proposal to scrap the 5% plate by some consumer staples will be shifted to 3% and the remainder to 8% categories, sources said.

Currently GST is a four tier structure of 5, 12, 18 and 28%. A 3% tax is also levied on gold and gold jewellery.

In addition, there is an exemption list of items such as unbranded and unpackaged groceries that are not affected by the levy.

Sources said to boost revenue the council may decide to trim the exempt items list by moving some of the non-food items to a 3% platter.

Sources said discussions are ongoing to raise the 5% record to either 7 or 8 or 9%, a final call being made by the GST Council, which includes both center and state finance ministers.

It has been calculated that every 1% increase in the 5% platter, which comprises mainly packaged food, would bring in approximately ₹50,000 crore of additional sales annually.

Although various options are being considered, the Council is likely to settle for an 8% GST (goods and services tax) on most items, which are currently taxed at 5%.

Under GST, essential items are either exempt or taxed at the lowest rate, while luxury and minus items incur the highest tax. Luxury and Sin Goods also attract Cess on the highest 28% panel. This levy collection will be used to compensate states for the loss of revenue due to GST implementation.

With the GST compensation scheme ending in June, it is imperative that states become self-sufficient and not dependent on the center to fill the GST collection revenue gap.

The council last year appointed a panel of ministers of state, headed by Karnataka Chief Minister Basavaraj Bommai, to propose ways to increase revenue by rationalizing tax rates and correcting anomalies in the tax structure.

The ministerial group is expected to finalize its recommendations early next month, which will be submitted to the Council for a final decision at its next meeting, expected in mid-May.

At the time the GST was implemented on July 1, 2017, the Center had agreed to compensate states for five years through June 2022 and protect their revenues at 14% per year over base year 2015-16 revenues.

The GST Council has often accepted the demands of industry and commerce over the years and lowered tax rates. For example, the number of goods subject to the highest tax rate of 28% fell from 228 to fewer than 35.

As the Center maintains its position of not extending the GST allowance beyond five years, states recognize that increasing revenue through higher taxes is the only option before the Council.

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