The GST council plans to increase the tax slab to 8% from 5%. Furthermore, the increase in tax slab may yield ₹1.50 lakh crore annual revenues.
The council aims to create a GST 3-tier structure instead of a 4-tier structure with revision rates at 8%, 18%, and 28%, respectively.
A panel of state finance ministers will submit their report by the month-end proposing steps to raise revenue.
Items under the increased tax slab
The increased tax slab to 8% may yield an additional ₹1.50 lakh crore annual revenues.
However, essential items are exempted or taxed at the lowest slab.
Nevertheless, demerit and luxury items fall under the highest tax slab.
Luxury and sin goods fall under additional cess along with the highest 28% slab.
The cess collection will compensate for the revenues lost due to GST rollout.
Moreover, packaged food items fall under the lowest tax slab. Therefore, a 1% increase will generate revenue of ₹50,000 crores annually.
The GST compensation regime
Presently, Unpackaged and unbranded food and dairy items do not fall GST.
Furthermore, ministers aim to add items under various tax slabs. The ministers additionally are looking to remove the items free from GST.
On July 1, 2017, the Centre executed GST and agreed to compensate states till June 2022.
The Centre further agreed to protect the state revenue at 14% per annum over the base year revenue of 2015-16.
A source says, “As the revenue-neutral rate has come down and the states stare at a shortfall of about ₹1 lakh crore, efforts have to be made to make GST revenue neutral and the only way to do it, is rationalize the tax slab and check evasion.”
Over the past five years, the reduction in GST on various items led to the revenue-neutral rate dipping from 15.3% to 11.6%.
Moreover, for instance, 228 goods once attracting 28% GST dipped to less than 35.
Rationalizing the tax slab could help maintain revenue neutrality. Furthermore, the GST council is expected to discuss the GoM report later or early next month.