The GST Council, which is scheduled to meet next month, may choose to do this by shifting some commodities of mass consumption to the 3 percent slab and the remainder goods to the 8 percent slab.
As part of its ongoing efforts to increase state revenue, it is believed that the GST Council will consider a proposal to eliminate the 5 percent tax slab at its next meeting in May. According to sources who spoke to PTI, the government may accomplish this by transferring some commodities of mass consumption to the 3 percent slab and the remainder goods to the 8 percent slab. The decision comes at a time when most states are on board with raising money in order to no longer be reliant on the federal government to compensate them for their troubles.
GST has a four-tiered structure as of right now. This has slabs of 5, 12, 18, and 28% of the total. At the moment, gold and jewellery are subject to a 3 percent tax charge on their value. In addition to this, there is an expert list for products such as unbranded and unpacked food items that do not fall under the purview of the levy.
According to the sources, the GST Council may decide to reduce the list of exempt items by transferring some of the non-food items to the 3 percent slab in order to increase income.
They went on to say that discussions are currently underway to raise the 5 percent slab to either 7 or 8 or 9 percent, depending on the circumstances. The GST Council, which is comprised of finance ministers from both the federal and state levels, will make the final decision on the matter.
The packaged food items that fall under the 5% tax bracket are the majority of them. According to projections, every 1% increase in the 5 percent tax bracket would generate an additional revenue of approximately Rs 50,000 crore every year.
A tax of 8% on most items that are currently subject to a 5% charge is the most likely course of action for the GST Council; nevertheless, a number of additional options are being considered.
Essential commodities are either exempted from taxation or charged at the lowest possible rate under the GST, whilst luxury and demerit items are subject to the highest possible rate of taxation. Luxurious and sinful goods are subject to additional taxes on top of the highest 28 percent slab. This cess collection is used to reimburse states for revenue losses incurred as a result of the implementation of the GST.
Given that the GST compensation regime will come to an end in June, it is critical for states to become self-sufficient and no longer rely on the Centre to close the income gap in GST collection.
An expert group of state ministers, led by Karnataka Chief Minister Basavaraj Bommai, was appointed by the Council last year to make recommendations on how to increase income by rationalising tax rates and eliminating anomalies in the tax structure.
The group of ministers is expected to complete its proposals by the beginning of next month, after which they will be presented to the Council at its next meeting, which is expected to take place by the middle of May, for a final decision.
In anticipation of the implementation of the Goods and Services Tax (GST) on July 1, 2017, the Centre committed to compensate states for five years, until June 2022, and to preserve their revenue at a rate of 14 percent per year over the base year revenue in 2015-16.
Over the years, the GST Council has frequently caved in to the demands of business and industry, lowering tax rates on many occasions. For example, the number of commodities subject to the highest 28 percent tax rate has decreased from 228 to less than 35 in recent years.
State governments are realising that generating revenues through higher taxes is their only choice now that the Centre has maintained its position not to prolong GST compensation beyond five years.