GST fitment panel for raising 18% slab to 20%, says report

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November 24, 2021 1:27 AM

A seven-member group of ministers (GoM) led by Karnataka chief minister Basavaraj S. Bommai will suggest measures to rationalise GST rates.

As part of the rate rationalisation exercise, the fitment committee of the goods and services tax (GST) has proposed raising the 5% slab to 7% and 18% to 20%, CNBC-TV18 reported. The TV channel also reported that GST on precious metal (gold/silver) will be hiked from 3% to 5%.

A seven-member group of ministers (GoM) led by Karnataka chief minister Basavaraj S. Bommai will suggest measures to rationalise GST rates. The GoM will review the current tax slab rates and recommend changes as needed to garner more resources as well as review special rates and recommend rationalization measures, including a merger of tax rate slabs, required for a simpler rate structure in GST. The weighted average GST rate is around 11.5% at present, as against the revenue-neutral rate of 15.5% estimated originally. However, the GST Council may not straightway increase the RNR to 15% or so.

Its terms of reference also include a review of the supply of goods and services exempt under GST to expand the tax base and eliminate breaking of input tax credit (ITC) chain. It would also review the instances of inverted duty structure other than where GST Council has already decided to correct the inverted structure and recommend suitable rates to eliminate inverted duty structure as far as possible to minimise instances of a refund due to inverted duty structure.

The rate rationalisation is necessary to aid the state governments, which will likely face a revenue shock due to the scheduled expiry of the GST compensation period on June 30 next year. Augmentation of GST revenues through rationalisation of the rates structure and improved compliance would likely ameliorate the situation.
The GST compensation mechanism ensures 14% annual revenue growth for states for five years through June 2022. The designated cess fund fell way short of the required level in FY21 and is seen to face a huge shortfall in the current financial year as well.

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