With the Goods and Services Tax (GST) slab rejig on the cards, revenue secretary Tarun Bajaj on Monday said the government may continue with the highest GST slab of 28% on luxury/sin goods while exploring the possibility of reducing the remaining three major slabs — 5%, 12% and 18% —to two.
“I think we will have to continue with 28% as in an developing economy where there is so much income disparity, there would be some luxury items and sin items, which should attract a higher rate of taxation,” Bajaj said at an event organised by industry body Assocham here. “But, whether on 5%, 12% and 18%, we can bring down to 2 rates to start with and then see how the country grows and whether there is a capacity to bring it to one rate or not is something to be seen.“It is a very difficult challenge,” Bajaj said.
The official said a concept paper on slab rejig could be presented to the GST Council with industry inputs. A much-awaited restructuring of the GST slabs to raise the revenue-neutral rate (RNR), from about 11.9% now to 15.5%, could start after a group of ministers headed by Karnataka chief minister Basavaraj Bommai submits its report by end-September. However, the process will likely be a multi-year task given inflationary concerns. Bajaj said the rate rationalisation exercise of the GST Council is a result of introspection after five years of GST and the policymakers do not have a “fetish” to raise the tax rates to the revenue-neutral level of 15.5%.
On the demand to include petroleum products under GST net, Bajaj said one has to wait for sometime as there are revenue concerns on the part of the Centre and states.There are four major GST slabs now – 5%, 12%, 18% and 28%. A clutch of demerit goods in the 28% bracket also attract cesses, the proceeds of which go to a separate fund meant to compensate states for the revenue shortfall and servicing of Rs 2.7 trillion loans taken in FY21 and FY22 to bridge the gap in compensation kitty.Besides, there is a special 3% rate for gold, jewellery and precious stones and 1.5% on cut and polished diamonds.As per an RBI study, the weighted average tax rate under the GST has come down to 11.6%, from 14.4% at the time of its launch.
The GST Council, based on the interim GoM report in June, recently removed tax exemptions on a host of items, including pre-packed and labelled wheat flour, paneer, curd, and lassi, while correcting inverted duties on items like LED lamps, solar water heaters.