A single standard rate at a mid-point of the two standard rates of 12 per cent and 18 per cent and a complete rationalisation of the topmost 28 per cent slab such that it will include only luxury and sin goods will define the future roadmap for the Goods and Services Tax (GST) regime, Finance Minister Arun Jaitley said Monday.
A single rate will, however, take “some reasonable time” when tax revenue rises “significantly”, but the country should “eventually have a GST which will have only slabs of zero, 5 per cent and standard rate with luxury and sin goods as an exception”, he said.
The Finance Minister also said that the next priority will be to lower the tax rate on cement which is currently taxed at the peak 28 per cent under GST.
Jaitley, in a Facebook post titled “Eighteen Months of GST,” criticised the Congress legacy of 31 per cent indirect tax, terming the pre-GST regime as the “worst indirect tax” system in which 17 taxes were levied with the standard rate at 31 per cent (standard VAT rate of 14.5 per cent and 12.5 per cent excise). “Those who oppressed India with a 31% indirect tax and consistently belittled the GST must seriously introspect. Irresponsible politics and irresponsible economics is only a race to the bottom,” he said.
At present, of the total 1,216 commodities under GST, broadly 183 are taxed at the zero rate, 308 at 5 per cent, 178 at 12 per cent and 517 at 18 per cent. “The 28 per cent slab is now a dying slab,” he said.
Will simplify complex GST structure
India’s GST is among the most complex, with the second highest number of tax rates among a sample of 115 countries that have this indirect tax system. As many as 49 countries have a single GST slab, 28 have two slabs and just five countries use four or more non-zero slabs. Though this rationalisation, a single standard rate, will entail revenue losses, it will help in simplifying procedure, a key industry demand.
Barring tobacco products, luxury vehicles, molasses, air-conditioners, aerated water, large TVs, and dish washers, all 28 items have been transferred from 28 per cent slab to 18 per cent and 12 per cent slab.
“Only cement and auto parts are items of common use which remain in 28% slab. Our next priority will be to transfer cement into a lower slab,” Jaitley said.
India’s GST is among the most complex with the second highest tax rate in the world among a sample of 115 countries that have this indirect tax system, according to the World Bank’s bi-annual India Development Update released March this year.
As many as 49 countries around the world have a single slab of GST, while 28 countries use two slabs, with just five countries, including India, that use four non-zero slabs.
Those having four or more slabs of GST, alongside India, are Italy, Luxembourg, Pakistan and Ghana.
In India, apart from the five key tax slabs, there are several exempted sales and exports are zero-rated. Gold is taxed at 3 per cent rate while precious stones at 0.25 per cent, even as alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the state governments.
Jaitley’s remarks come after he chaired the 31st meeting of the GST Council on Saturday, wherein the Council cut rates on 23 goods and services including movie tickets priced above Rs 100, television screens and monitors up to 32 inches, digital cameras, video games consoles and power banks with lithium-ion batteries.
The latest round of rate reduction, the fifth since GST rollout on July 1 last year, will cost the exchequer around Rs 5,500 crore a year and Rs 1,375 crore in the remaining three months of this fiscal.
In total, the rate reductions so far under GST are estimated to be worth Rs 80,000 crore a year, he said.
Last week, Prime Minister Narendra Modi had said his government wanted to ensure that “99 per cent things” were taxed at 18 per cent or below. “With the GST transformation completed, we are close to completing the first set of rate of rationalisation i.e. phasing out the 28% slab except in luxury and sin goods. A future road map could well be to work towards a single standard rate instead of two standard rates of 12% and 18%. It could be a rate at some mid-point between the two. Obviously, this will take some reasonable time when the tax will rise significantly. The country should eventually have a GST which will have only slabs of zero, 5% and standard rate with luxury and sin goods as an exception,” Jaitley said.
Jaitley said the fitment of items in multiple tax slabs helped contain inflation. “States were charging an entertainment tax ranging from 35% to 110%. This came down radically. 235 items were being charged at either 31% tax or even higher. All except 10 such items were brought down immediately to 28%. The 10 such items were brought down to even a lower rate i.e.18%. Multiple slabs were fixed transiently in order to ensure the tax of no commodity goes up radically. This contained the inflation impact. Most aam aadmi items were placed in the zero or 5% tax bracket,” he said.