To gauge the states’ mood ahead of the Goods and Services Tax (GST) Council’s meeting in late May, the GST Council secretariat has sought states’ views on the scope for raising tax rates on 143 items, in most cases to revert the rate to 28% from 18%.
“The opinions of the states have been sought on raising the GST rates on 143 items. After getting a sense of the opinion of states, the proposals may be put up before the GST Council,” a state finance minister told FE.
In December 2018, the GST Council slashed the tax rates on a large number of items, including consumer durables, electronic goods and furniture items, from 28% to 18%. These include some televisions, water coolers, ice cream freezers, milk coolers, food grinders, paints, digital cameras, video camera recorders and video game consoles and sports requisites. In November 2017, the rates on chocolates and other food preparations containing cocoa were reduced from 28% to 18%.
Separately, suggestions by a group of ministers led by Karnataka chief minister Basavaraj Bommai on GST rate rationalisation will likely be ready soon after taking inputs from states. The GST Council may consider these proposals in the third week of May.
Caught between the conflicting objectives of boosting revenue receipts and controlling runaway inflation, the Centre may make a pitch for calibrated hikes in the GST rates over the next couple of years, rather than a one-time trimming of the slabs from four at present to three, according to sources.
The states are concerned about a possible drop in their tax revenues after June, when a five-year revenue cover for them will cease to exist. The road map for GST rate hikes will likely factor in the need to take the weighted average GST rate from a little over 11% at present to the estimated revenue neurtal rate of 15-15.5% over a two-three year period, but won’t give a shock to the consumers by way of sharp increase in rates.
Currently, there are four main GST slabs: 5%, 12%, 18% and 28%. About 70% of the GST revenues come from over 480 items which attract 18% GST.
There is a view in the Centre that items under the 12% and 18% slabs should be shifted to a new median slab of 15%.
Kerala finance minister KN Balagopal, a member of the GoM, told FE recently: “We have identified 25 items, including refrigerators, where benefits of GST rate reductions have not been passed on to consumers by the companies. These rate cuts should now be reversed.”