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Slew of GST rate hikes imminent

There will also be some tax reliefs. For instance, a margin scheme to reduce tax incidence on tour operators is being examined.

Gold e-way bill
The Council will consider a report of the panel of state ministers on making e-way bill mandatory for intra-state movement of gold above a threshold of Rs 2 lakh.

The Goods and Services Tax (GST) Council, in its two-day meeting starting here today, will consider rate hikes for a slew of items and steps to check evasion like biometric authentication of ‘high-risk taxpayers’, sources said.

Levying taxes on hotel rooms costing below Rs 1,000 per day and bringing ‘unbranded’ pre-packaged and labelled food items under the tax net will also be considered.

An interim report of a group of ministers (GoM) on rate rationalisation had suggested correcting residual cases of inverted duty structures and removing some items from the exempted list. These proposals will be taken up.

Besides, the Council will consider a report of the panel of state ministers headed by Kerala finance minister KN Balagopal on making e-way bill mandatory for intra-state movement of gold above a threshold of Rs 2 lakh.

But a likely stand-off between the Centre and some states over the termination of the revenue compensation for states could muddy the agenda, the sources indicated. A major rejig of the GST rate structure is unlikely in the 47th meeting of the Council, which coincides with GST completing five years, given the persistent inflationary pressures in the economy.

“The only solution (for revenue shortfall) is broadening the tax base and not increasing the rates,” Delhi deputy chief minister Manish Sisodia told FE. He said the GST has not yielded the desired result of bringing tax buoyancy and that the Centre should consider extending the compensation mechanism till the states achieve the desired growth rate of 14%.

The Centre on Saturday notified extension of the compensation cess, levied on a few “luxury and demerit goods”, till March 2026 to repay loans amounting to Rs 2.7 trillion that were raised by the Centre in the last two financial years to compensate states for GST revenue loss. The cess proceeds fell woefully short in the two years.

The GST Compensation to States Act provides for the release of compensation against 14% year-on-year growth over revenues in 2015-16 from taxes subsumed in GST for the first five years of the tax.

According to the sources, rate changes that may come under the Council’s consideration include hike in the rates for LED lamps, ink, knives, blades, power-driven pumps, dairy machinery from 12% to 18%, and rate increase for finished leather and composition leather from 5% to 12%. Also, online games, casinos and horse racing may be brought under the highest slab of 28%.

To correct the inverted duty structure, the Council to discuss increasing rate on work contract services supplied to the government and local authorities from 5% to 12% in some cases and 12% to 18% in others.

As an alternative model, the Council will discuss the Fitment Committee’s proposal levying tax on the margins made by tour operators at a suitable rate. Currently, a 5% GST is levied on gross tour cost without the facility of input tax credit.

There will also be some tax reliefs. For instance, a margin scheme to reduce tax incidence on tour operators is being examined.

A clutch of proposals made by the GoM to improve compliance further are also likely to be considered by the Council. These include inclusion of electricity bill data during registration by new taxpayers, real-time validation of all bank accounts against a particular PAN, risk assessment of new applicants using machine learning and mandatory physical verifications, and site verification with geo-coding for getting correct address filed by taxpayers.

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