In favor of the central government consolidating the Goods and Services Tax (GST) rate in a single slab of 12% and 18%, a top finance ministry official said the commission (FFC) has accepted the demand first made by some states and supported by the Fifteenth Finance. .
The GST Council, India’s federal indirect tax agency, could discuss the matter, the official added.
India currently has five primary GST rates of 5%, 12%, 18% and 28%, excluding special rates of 0.25% and 3% for precious stones and metals. There is also a benefit on luxury and decent products such as automobiles, tobacco and aerated drinks.
“Consolidation of the two tax slabs has been discussed. It may be taken up for consideration at the next (GST) Council meeting in March. States also need to agree, “the official said on condition of anonymity.
When India consolidated 11 central and state taxes into a single GST, it was considered a revenue-neutral exercise; Meaning, it will not cause any change in the actual tax revenue for the state and the center. However, a series of GST reductions since then have reduced tax revenue and a tax slab revision will aim to fix it.
“If the 12% and 18% slabs are combined to form a new slab, the tax burden on the items currently in the 12% slab will increase. It remains to be seen how businesses and customers will respond. On the other hand, the tax on items in the 16% slab is a It will come down to disaster, “said Abhishek Jain, EY India’s tax partner.
If the council approves a single rate, items such as ghee, butter, cheese and glasses could become expensive, while soap, kitchen utensils and clothing could become cheaper. However, the final decision on individual item rates will be made by a fitness panel.
In its report to parliament this month, the FFC called for restoration of “GST neutrality”, which was compromised by multiple rate cuts.
The finance ministry did not respond to an emailed question Mint.
“The recovery of the revenue-neutral rate will mean merging the rates of 12% and 18% and managing a three-tier structure of merit rates, a standard rate and a demat rate of about 28% to 30% and tax reduction (operations).” The FFC report said that it recommended a system of sharing central tax revenue with the states for the period 2021-26.
Kerala Finance Minister Thomas Isaac said in an interview last month that with the trend of indirect taxation declining sharply since the introduction of GST, the most important issue for the next GST Council meeting will be to discuss the necessary changes in GST. Isaacs said that if this is not fixed, the states will face a reduction in revenue collection when the GST compensation ends in June 2022.
The issue of merging GST slabs was discussed earlier, though not at the GST counter. Former finance minister Arun Jaitley called for merging the two slabs. “A road map is better to work towards a single standard rate instead of two manic rates of 12% and 18%. It could be a bit of a middle ground between the two … Finally there should be a GST in the country, with the exception that it will have only zero, 5% and standard rate luxury and sin products, ”Jaitley wrote in a December 2018 blog.
Abhishek A. Rastogi, Khaitan’s partner, said, “Rate rationalization will help reduce classification disputes, but combining 12% and 18% rates can cause some revenue loss and therefore the right number of crunching is essential,” said Abhishek A. Rastogi, Khaitan’s partner.