With most states on board to increase revenue so they don’t depend on the Center for compensation, the GST council at its meeting next month is likely to consider a proposal to do away with the 5 percent plate by selling some bulk goods. move consumption to 3 percent and the remaining to 8 percent categories, sources said.
Currently, GST is a four-level structure of 5, 12, 18, and 28 percent. In addition, a 3 percent tax is levied on gold and gold jewelry.
In addition, there is an exempt list of items such as unbranded and unpackaged food for which the levy does not apply.
Sources said that to boost revenues, the Council may decide to prune the list of exempt items by moving some of the non-food items to 3 percent slice.
Sources said talks are underway to raise the 5 percent record to 7 or 8 or 9 percent, a final call will be made by the GST council, which includes finance ministers from both the Center and the states.
According to calculations, each 1 percent increase in the 5 percent plate, which mainly includes packaged food products, would bring about an additional turnover of Rs 50,000 crore per year.
While several options are being considered, the Council is likely to accept 8 percent GST (Goods and Services Tax) on most items currently subject to a 5 percent duty.
Under GST, essential items are exempt or taxed at the lowest rate, while luxury and worthless items draw the highest tax. Luxury and sin goods are also attracting cession atop the highest record of 28 percent. This cess collection is used to compensate states for the loss of revenue due to the rollout of GST.
With the GST Compensation Scheme coming to an end in June, it is imperative that states become self-sufficient and not rely on the Center to bridge the revenue gap in GST collection.
The Council had set up a panel of state ministers last year, led by the chief minister of Karnataka, Basavaraj Bommai, to propose ways to increase revenues by rationalizing tax rates and correcting anomalies in the tax structure.
The group of ministers is expected to finalize its recommendations early next month, which will be presented to the Council for a final decision at its next meeting, likely in mid-May.
At the time of GST implementation on July 1, 2017, the Center had agreed to offset states for five years through June 2022 and protect their revenues at 14 percent per annum over base year 2015-16 revenues.
The GST Council has often succumbed to corporate demands and reduced tax rates over the years. For example, the number of goods with the highest 28 percent tax fell from 228 to less than 35.
With Center sticking to its stance not to extend GST compensation beyond five years, states are realizing that increasing revenues through higher taxes is the Council’s only option.