The 43rd GST Council meeting is expected to be held around the 15th of the next month. The Ministry of Finance is eagerly pushing the agenda of merging the GST rate slabs in the upcoming GST Council meeting.
News reports are stating that the 12% and 18% rates may get merged to a single mid-rate bringing down the number of rate slabs under GST. The Finance Commission says that the move is a win-win situation for both taxpayers and the government. It shall be able to address the major issue created due to the inverted tax structure.
Further, the decision, if made, will be a relief to consumers of products that are currently taxed at a GST rate of 18%. Any reduction in the GST rates for the majority of finished products will boost consumption. In turn, it will contribute to the much-needed revival of the country’s economy. Furthermore, the higher the consumption, the revenue collections shall grow positively. However, it must also be noted that there is no empirical evidence that shows a direct correlation between the rationalisation of GST rates and driving economic growth.
The government has been taking several preventive measures on tax evasion, successfully nabbed the defaulters, fraudsters and unearthed fake invoicing scams under GST over the last couple of months. The same is noticeable through the steady rise in the monthly GST revenue collections over the last two months.
Hence, the conditions are conducive for a major GST rate overhaul. Currently, there are four major GST rate slabs- 5%, 12%, 18% and 28%, apart from the smaller ones such as 0%, 1%, and 3%. Due to the multiple tax rates, certain raw materials fall in the higher tax slabs compared to their corresponding finished goods, which attract lower tax rates. It leads to an inverted tax structure and invites unnecessary GST refund hassles. A clarity will soon be given through the 44th GST Council meeting to be held in March 2021.
Earlier, the revenue augmentation committee of the GST Council has also recommended a two slab GST rate structure. Whereas the GST Council had formed a special committee to examine the possibility of a three-rate GST structure at the 38th GST Council meeting held on 18th December 2019. Exactly a year back, there was an announcement by the Hon’ble Finance Minister that the GST rate revision shall become an annual exercise in the future.
Accordingly, 2020 saw the least revisions or rationalisation of the GST rates ever since 2017. With the pandemic affecting several industries, many representatives have asked for a GST rate cut. This is also expected to be taken up in the upcoming GST Council meeting. The Union Budget 2021 did not make mentions or hint on this subject since the matter had to be tabled before the GST Council.
It is apt to note what the International Monetary Fund (IMF) had commented on the current GST rate structure of India back in its 2018 report. The team pointed out that the multiple rate structure and other aspects of India’s GST environment may give rise to high compliance and administrative costs. Moreover, it had also recommended a dual-rate structure with a generic lower rate and levy of an additional higher rate on a few chosen items. In turn, it can be progressive and will preserve revenue neutrality.
The next GST Council meeting may probably be held virtually like before. There could be many more items for discussion on the agenda, but the major GST rate rejig will remain the highlight.
For any clarifications/feedback on the topic, please contact the writer at firstname.lastname@example.org
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.