Will India’s Goods and Services Tax rates be restructured this year?

A ministerial group of the GST Council, under Karnataka Chief Minister Basavaraj S. Bommai, was tasked last September to suggest immediate changes, as well as a roadmap for short- and medium-term changes to the GST rate structure.

• The group of ministers (GoM) is yet to conclude its deliberations.

Goods and Services Tax (GST):

• GST is one indirect tax for the whole nation, which will make India one unified common market.
• The GST intends to subsume most indirect taxes under a single taxation regime.
• GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
• Credits of input taxes paid at each stage will be available in the subsequent stages of value addition, which makes GST essentially a tax only on value addition at each stage.
• The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
• This is expected to help broaden the tax base, increase tax compliance, and reduce economic distortions caused by inter-state variations in taxes.

The objective of ministerial group of the GST Council:

• The objective of the group is to simplify the rate structure of GST to reduce classification related disputes and enhance GST revenues.
• The specific objectives of the GoM on Rate Rationalization are the following: –
  • review the exempted supply of goods and services under GST with an objective to expand the tax base as well as elimination of breaking of ITC chain,
  • review the current tax rates of GST and
  • recommend changes to generate required revenue, review the current rate structure of GST and
  • recommend rationalization measures (including merger of tax slabs for simplification) and
  • review the instances of inverted duty structure and recommend suitable rates to eliminate the same

Need to rationalise the GST rates:

• From businesses’ viewpoint, there are just too many tax rate slabs.
  • The five broad tax rates of zero, 5%, 12%, 18% and 28%, with a cess levied over and above the 28% on some ‘sin’ goods.
  • Special lower rates are levied on items like precious stones and diamonds.
• For the government, the top priority, apart from simplifying the tax structure in the hope of bolstering compliance, is to rake in more revenues as they believe collections have been underwhelming.
• The assured compensation period for States under the GST compact expires on June 30, so their fiscal space will depend on actual collections thereafter.
  • The Council set up two GoMs to resolve this:
    • one to examine more technology and schemes to improve tax compliance, and
    • Under Mr. Bommai to rationalise tax rates to correct anomalies and consider the merger of different tax slabs.