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The government intends to continue with the top GST slab of 28 per cent for luxury and sin goods, but is open to discuss narrowing down the three slabs of 5, 12 and 18 per cent into two, Revenue Secretary Tarun Bajaj said on Monday.
Addressing the industry leaders, Bajaj said the rate rationalisation exercise of the GST Council is a result of introspection of GST, five years after its rollout, and the policymakers do not have a "fetish" to raise the tax rates to the revenue-neutral level of 15.5 per cent.
On the industry demand for bringing petroleum products under GST net, he said since fuel constitutes a larger part of their revenues, both the Centre and states have some apprehension. "We will have to wait for some time."
"Of the 5, 12, 18 and 28 per cent, we would have to continue with 28 per cent because in a developing economy, in an economy with so much of income disparity, there would be some luxury and sin items that would and should attract a higher rate of taxation.
"But, whether on 5, 12 and 18 (per cent), 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 at an Assocham event.
Under the GST, a four-rate structure that exempts or imposes a low rate of tax of 5 per cent on essential items and a top rate of 28 per cent on cars is levied. The other slabs of tax are 12 and 18 per cent.
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Besides, there is a special 3 per cent rate for gold, jewellery and precious stones and 1.5 per cent on cut and polished diamonds.
Also, a cess is levied on the highest tax slab of 28 per cent on luxury, sin and demerit goods. The collection from the cess goes to a separate corpus -- Compensation fund -- which is used to make up for revenue loss suffered by the state due to the GST rollout.
The GST Council has set up a Group of Ministers (GoM), under Karnataka Chief Minister Basavaraj Bommai, to suggest rationalisation in tax rates, merging of slabs, reviewing the exempt list and correcting duty inversion in cases where taxes on final output in lower than that in inputs. The GoM has been given 3-month more time to submit a final report.
As per an RBI study, the weighted average tax rate under the Goods and Services Tax (GST) has come down to 11.6 per cent, from 14.4 per cent at the time of its launch.
The revenue-neutral rate under the GST should be about 15.5 per cent, as per the Subramanian Committee report, submitted before the GST launch.
The GST Council, based on the interim GoM report last month, had 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.
"We keep talking of RNR at 15.5 per cent and the present rate being 11.6, may be gone up to 11.8 or 11.9 per cent with inverted duties being removed. What is it? are we looking at we should reach a rate of 15 per cent? I really do not think there is any fetish in the minds of policymakers that we have to reach that particular rate," Bajaj said.
The secretary said this is the time after five years to introspect and see how the GST rate structures have panned out, whether there is a need to lessen the number of rates than what they presently are and what are the commodities that can go into higher rates and which can come into lower rates.
"I think, we as policymakers and states now are looking at GST from this eye and not having this objective that I have to somehow increase rates in some commodities to reach that 15 per cent odd rate," Bajaj added.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
