The group of ministers (GoM) reviewing the goods and services tax (GST) rates will meet virtually on Friday to discuss the proposed rejig in tax slabs, even as it may seek six more months to finalise its report.
“We have been verbally told that there will be a meeting on Friday. No agenda has been shared so far,” a member of the GoM told FE.
Sources said the panel, headed by Karnataka chief minister Basavaraj Bommai, will review the list of goods and services exempt under GST to expand the tax base and eliminate the breaking of the input tax credit (ITC) chain. Besides, it will look into the instances of an inverted duty structure to correct the inverted structure and recommend suitable rates to eliminate the inverted duty structure, as far as possible, to minimise instances of refund due to the inverted duty structure.
The GoM was set up in September last year and was then tasked to submit its report in two months. In December, the group was given further time till March-end, but it is yet to finalise its recommendations. It last held a meeting in November 2021.
The GoM’s main mandate is to review the current tax slab rates, and recommend changes as needed to garner more resources, as the five-year GST compensation mechanism comes to an end this month.
While a much-awaited comprehensive restructuring of the GST slabs to raise the revenue-neutral rate (RNR), from a little over 11% now to 15.5%, may take some more time due to inflationary concerns, the GST Council could consider raising the GST on online gaming from 18% to 28%, to bring the skill-game tax rate at par with chance games involving gambling and betting, sources said. The GST Council s likely to meet by end-June.
There are four major GST slabs now — 5%, 12%, 18% and 28%. A clutch of demerit goods in the 28% bracket also attracts cesses, the proceeds of which go to a separate fund meant to compensate states for the revenue shortfall.
The Bommai-led GoM will consider the merger of tax rate slabs, required for a simpler rate structure in GST. Given the slab rejig is a complex exercise involving, among other things, correction of inverted duties in many value chains, the GoM will likely be given additional time, another source had said recently.
The council had to drop a plan to hike the GST rates for most textile products in the man-made fibre value chain from 5% to 12% in late December 2021, to correct the inverted duty structure, amid protests from the industry from Gujarat and other states. The GoM will revisit the matter afresh.
Based on the recommendation of the GoM, the council may eventually shift items under the 12% and 18% slabs to a new median slab of 15%. The 5% rate may be replaced by a new rate, which will be 6% or 7%, but the rate tweaking will be done in a manner that finally creates a three-slab structure.
In the meantime, officials are banking on the continuation of the buoyancy in GST collections and anti-evasion measures to narrow the likely shortfalls in GST receipts.
Under the GST compensation mechanism, which is constitutionally guaranteed, state governments are assured 14% annual revenue growth for the first five years after the tax’s July 2017 launch.