GST rate rejig may get delayed: GoM suggests a single 15% GST instead of 12% and 18%.

The government may delay restructuring the Goods and Services Tax (GST) rate slabs by some more months. It includes the plans to increase the Revenue Neutral Rate (RNR) from 11% to 15.5%. Commodity prices have soared, bringing speculations of higher inflation amidst the global tension of the Ukraine-Russia war. 

These conditions have brought the Reserve Bank of India’s (RBI) accommodative monetary policy under the critical scanner. On the other hand, the Group of Ministers (GoM) was established in September 2022 to study the possibility of GST rate restructuring. The committee has suggested merging 12% and 18% tax rates into 15%. They have also proposed to raise the basic GST rate from 5% to 8%.

The delay in GST rate rejig can further affect the state government’s coffers. The collected compensation charge will end on 30th June 2022, negatively affecting state revenues. Despite a dip in revenues, the states have seen increased expenditure in the wake of pandemics over the last two years. All these indicate that it is inevitable for the government at the Centre to extend the period of levying compensation cess.

The GoM may meet again this week to finally decide on GST rates. The GST rate change discussions will begin early next month when the GST Council is expected to meet. Accordingly, expectations are on the rife that there will be a phase-wise implementation of the GST rate structure changes. 

The officials are betting on the anti-tax evasion measures to keep control of the dip in the revenues. Further, the central government is aware that any hike in the GST rate can disturb the consumption pattern and affect sales.

The GST compensation scheme approves an annual revenue growth of 14% for the initial five years of the GST introduction. It may not be ideal for hiking the GST rate to 8% from 5%. Nevertheless, it could contribute to additional annual revenues of around Rs.1.5 lakh crore.

Some members of the GST Council have also recommended an increase in the sin goods. While the GST rate hike is necessary, the time may not be conducive to act.

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