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Wednesday, December 08, 2021

GST GoM meet on Nov 27: Rate tweak plan worries some states

This comes in the backdrop of states citing concerns about the inflationary impact of any such major rate hikes, especially in the aftermath of the pandemic.

By: ENS Economic Bureau | New Delhi |
Updated: November 24, 2021 2:28:37 am
The Finance Ministry has constituted a seven-member Group of Ministers (GoM) under Karnataka Chief Minister Basavaraj S Bommai for “rate rationalisation” and another eight-member GoM under Maharashtra Deputy Chief Minister Ajit Pawar for “GST system reforms”.

The Group of Ministers (GoM) constituted to review the current rate slab structure under the Goods and Services Tax (GST) regime will meet on November 27 to discuss various proposals for rate rationalisation and measures to shore up revenues. While an officer-level fitment committee is learnt to have recommended raising of tax rates from 5 per cent to 7 per cent and 18 per cent to 20 per cent, some state finance ministers have flagged potential concerns over the impact of such major rate changes and indications are that all of the recommendations made the officer-level panel are unlikely to be accepted by the GoM.

This also comes in the backdrop of states citing concerns about the inflationary impact of any such major rate hikes, especially in the aftermath of the pandemic. “There will be discussions on November 27, which will be the third meeting of the GoM. Some proposals about inverted duty and other measures have already been discussed. One has to be careful about any such major rate change, especially the 5 per cent slab which has many common-use items. Price rise will be an issue if rates are changed without proper studies. So, many things have to be looked into before taking a final view, which is anyway going to be taken up by the GST Council,” a state finance minister told The Indian Express.

The next GST Council meeting, going to be held in December, wherein the GoM will present its report on rate rationalisation.

“The GoM consists of seven states. The priority is correction of inverted duty structure. It has already been done for textiles and footwear. Many other items have to be considered for which we will have to see sense of the GST Council in total,” another state government official said.

After the previous GST Council meeting in September, two ministerial panels were constituted for spelling out a blueprint for GST reforms. The panels’ brief incorporates an overarching mandate: an evaluation of “special rates” within the tax structure, rationalisation measures that include “a merger of tax rate slabs for simplifying the rate structure”, alongside a review of instances of inverted duty structure and an identification of potential sources of evasion to shore up revenues.

The Finance Ministry has constituted a seven-member Group of Ministers (GoM) under Karnataka Chief Minister Basavaraj S Bommai for “rate rationalisation” and another eight-member GoM under Maharashtra Deputy Chief Minister Ajit Pawar for “GST system reforms”.

Queries sent by The Indian Express to the Finance Ministry on the proposed rate changes did not elicit a response.

Though GST revenue collections have been high in recent months, even recording the second-highest level in October since its July 2017 rollout, concerns of revenue buoyancy under GST were raised in the previous Council meeting, following which the GoMs were assigned to reassess the current tax slabs including a possible merger of some tax slabs. Rate changes are also being considered as the compensation to states for revenue losses under GST will come to an end in June 2022.

The GST has five key tax slabs: zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent. A compensation cess, ranging between 1 per cent to 290 per cent, is levied on demerit and luxury goods over and above the topmost rate of 28 per cent. While most food items attract zero GST, many edible and processed food items such as cane sugar, tea, spices are under the 5 per cent slab.

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