Goods and Services Tax (GST) rate rationalisation, including a proposal to have a dual rate structure, a relook at items which were taxed at a higher rate in pre-GST VAT era such as milk powder, butter, correction of rate structure for items facing inverted duty and compliance related issues were some of the proposals discussed at the meeting of committee of officers on revenue augmentation on Tuesday.
Though many proposals were discussed in the meeting including hiking the 5 per cent slab to a higher rate such as 8 per cent along with a possible merger of 12 per cent and 18 per cent slabs, no consensus emerged at the end of the meeting, two senior government officials said.
One of the states also proposed a dual GST rate structure—10 per cent and 20 per cent—and doing away with rest of the rate slabs, one of the officials said.
All states, however, are not in favour of raising GST rates, especially the lower rate slab of 5 per cent. “The GST Council after very prolonged deliberations had fixed the rates and then the upper slab 28 per cent without much serious consideration of revenue implication was brought down. The compulsion of elections weighed on the decisions…now, they want to raise the rates of lower slab…which is not fair. In this current situation, it is not right to impose higher burden on people…I would say keep the lower slab and exemptions as it is and raise the higher slab,” Kerala’s Finance Minister Thomas Isaac told CNBC-TV18. States have received no formal communication regarding any rate hike decision, he added.
All proposals for rate rationalisation and revenue augmentation will now be taken up in the GST Council meeting, which is scheduled for December 18. Any significant rate changes are likely to take effect only from next financial year, one of the officials said.
The Standing Committee on Finance in a report released Tuesday also flagged the revenue and compliance related issues under the GST regime. Noting that the GST collections have slowed in the recent months vis-à-vis the targets, the Committee said it expects the government to “resolve all the troubling issues relating to GST at the earliest to achieve the desired revenue buoyancy”.
The committee also urged the government to monitor compliance and prevent misuse of provisions. “The Committee would also urge the Department of Revenue to remain vigilant so as to prevent misuse of provisions such as input tax credit and enhance monitoring of overall compliance. Systematic reports as well as feedback surveys should also be collected from tax payers to evaluate whether GST is operating smoothly,” the report said.
Slowing revenues under GST have become a concern over the last few months, with compensation payments to states being held back since August. If a rate hike is resorted to by the GST Council to protect the revenue stream, it would be the first time a hike in rates would be undertaken.
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