The highest slab of 28% under the goods and services tax (GST) could be restricted to luxury and sin goods, a top tax official said on Saturday, a day after the GST Council reduced the rates on 27 items amid concerns over the new tax proving to be inflationary at the start. While a month ago the council had reduced the tax rates on 30 items and few others earlier, finance minister Arun Jaitley subsequently hinted at a shift to fewer tax slabs once GST’s revenue-neutrality is clearly established.
The GST Council has come to view the 28% rate to be “unnecessarily high” on various daily-use items, member (GST), CBEC Mahender Singh said at an event in the capital. Stating that many items came under higher tax rates, as the council went by the criterion of equivalence with the pre-GST rates, Singh said it was perhaps wrong to adopt that norm (pre-GST rates on several items were higher than warranted because many states taxed certain items heavily).
When the GST Council finalised the tax rates on over 1,200 items in May, it put 7% of the items under the exempt (nil rate) category and 14% of items under 5% rate. Another 17% items are in the 12% tax bracket, 43% in 18% slab and 19% goods fall in the top tax bracket of 28%. This would mean that more than four-fifth of the goods would fall under a GST rate of 18% or below, while previously, around 35% of items were taxed at 27% or above, although the real tax incidence on them is 4-5 percentage points lower because the excise duty is levied on the ex-factory price.
In case of sin goods (pan masala, cigarette, tobacco, aerated drinks) and luxury cars, cesses are levied in addition to 28% GST. With rate revision of several items post GST rollout in July, the 28% slab has become even thinner, but the council is looking at cutting rates for more items in this group.
In the next meeting at Guwahati in November, the council could take up a proposal to allow the services sector to choose the composition scheme, which allows paying tax at a small percentage of the turnover without scrutiny. This, and whether to allow units with inter-state sales to opt for the composition scheme, would be considered by a group of ministers (GoM) that would submit its report to the Council in two weeks. The reverse charge mechanism (RCM) under GST was suspended till the end of the fiscal by the council on Saturday, based on a report from tax officials in industrial states. Singh said nearly 100 officials deputed in Gujarat to collect RCM had said it was not working for many businesses and was instead adding to their burden. He added that the council would address these issues before bringing the provision back. Under the GST law, when a registered dealer buys from an unregistered supplier, the onus is on the registered person to collect tax from the latter, which is known as RCM. While the intent of the provision was to widen the tax base and encourage formalisation, it has come under fire from businesses for raising the compliance burden.
Singh, however, emphasised that the anti-profiteering law wasn’t draconian and was needed. Pointing out the case of restaurants, where, he claimed, the price of the items haven’t reduced despite them availing input tax credit, he said such instances underlined the need for an anti-profiteering authority.
Speaking at the same event, GST Network CEO Prakash Kumar said over 90 lakh taxpayers had registered on the network till Friday. This included 64 lakh taxpayers who migrated from the earlier regimes and 26.4 lakh new taxpayers. Separately, nearly 15 lakh assessees have chosen the composition scheme. Minister of state for finance Shiv Pratap Shukla reiterated at the same event that the GST Council will continue to rationalise rates going forward. He said all glitches and loopholes in implementation of GST will be removed within a year of its implementation.