Fitment Committee Proposes Higher GST Slabs at 7% and 20%

In the 45th GST Council meeting, the Council decided to set up a Group of Ministers (GoM), led by the chief minister of Karnataka, Basavaraj Bommai. The GoM was to look into the rate rationalisation of goods and services, and the Council nominated a Fitment Committee in this regard. According to sources, the committee has sent a proposal to the GST Council to increase the GST rate slabs from 5% to 7% and from 18% to 20%.

The GoM has, so far, met twice to discuss the rate rationalisation of about 40 items, as suggested by the Fitment Committee. They are set to meet again on 27th November to decide on the GST rate slabs and rate structure. They will also examine other matters such as increasing the compensation cess rate from 1% to 1.5%, the rate on precious metals from 3% to 5%, and the feasibility of merging the 12% and 18% GST slabs.

To curb tax evasion, the GoM wishes to continue with the exemptions on bread, toddy, hearing aids and parts, slate/chalk/slate pencil, input services to educational institutes, amongst others. However, the GoM is also in favour of withdrawing certain exemptions on other items and levying GST to mitigate tax evasion, sources have further added.

The GST rates on agriculture-related items such as machinery, tractors, etc., and aggarbati, lanterns, utensils, are unlikely to be changed. With regard to the hotel industry, in a bid to evade tax evasion, the GoM could consider taking away the exemption or changing the differential rate for units costing less than Rs 1,000 per unit per day from nil GST to 12%. 

The GoM will carefully consider the proposals and prepare a draft report on the rate rationalisation, to be circulated to all GoM members. Once final approval has been obtained, the report will then be submitted to the GST Council to be formally considered, sources further said.

The GoM is aware that the rate rationalisation requires careful consideration, noting that two member states of the GoM, i.e. Uttar Pradesh and Goa, are going to the polls. Sources believe that the decision could hence come with political repercussions. 

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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