A group of ministers (GoM) headed by Karnataka chief minister Basavaraj Bommai will get another six months to submit its report on restructuring of Goods ans Service Tax (GST) slabs, a senior government official told FE. “This (rate rejig) is a complex exercise involving, among other things, correction of inverted duties in many value chains,” the source said, citing the reasons for giving the group more time.
Th 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.
The GOM’s mandate is to “review the current tax slab rates and recommend changes as needed to garner more resources.”
Another extension will mean that the restructuring of the GST slabs to raise the revenue-neutral rate (RNR), from a little over 11% now to 15.5%, would be delayed. High inflation has reduced the urgency of the exercise as a rate rejig keeping with RNR objective in mind will inevitably lead to higher rates for a large number of goods and services.
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 separate fund meant to compensate states for “revenue shortfall.”
The GoM will consider merger of tax rate slabs, required for a simpler rate structure in GST.
The GST Council is likely to meet in the second half of this month to deliberate on how some states’ revenue concerns will be addressed after the cessation of a five-year revenue compensation period on June 30.
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. The rise in monthly gross GST collections have given some breathing space to the government to recalibrate an action plan on tax rates as the shortfall in GST by states after end of compensation mechanism will not be that high, officials reckon.
Gross GST collections have been in excess of Rs 1.4 trillion in the past three consecutive months against a monthly average of Rs 1.23 trillion in FY22. However, the Centre reckons that the monthly average for the whole of the current fiscal year will be around Rs 1.3 trillion.
While the Council made some attempts to correct inverted duty structures across several value chains, the decision to roll back a uniform GST rate for textiles proved that it won’t be an easy option either. 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, amid protests from the industry from Gujarat and other states. It may not be able revisit the issue soon.