The GST structure may be in for an overhaul

In an attempt to amp up the revenue collection, the GST Council is likely to decide on overhauling the rate structure next week. Well, the consumers must brace themselves for higher goods and services tax (GST) rates from April 1, 2020, then. 

So, proposals put forward by the Centre advise raising the 5 per cent slab, which covers mainly essential commodities such as basic clothing and food items, to anywhere between 6 and 8 per cent, and doing away with the 12 per cent slab which currently contributes 13 per cent to the GST revenue. 

Now understand, increasing the 5 per cent slab to 6 per cent will mean additional revenue of Rs 1,000 crore per month, assuming GST collection of Rs 1 trillion, while raising it to 8 per cent will mean additional mop-up of Rs 3,000 crore.

However, a few states may oppose such a move because it involves hiking tax on items consumed by the poor. They have instead proposed raising the 18 per cent slab, which contributes 60 per cent to the revenue.

Kerala Finance Minister Thomas Isaac told Business Standard that the proposal of tweaking the lower slabs would be strongly opposed. “It is a bizarre proposal. I will not accept increasing tax burden on the poor. It will be injustice,” he said, adding “Raise the upper slab, if needed.

The 18 per cent slab can go up to 22 per cent or to 25 per cent,” said Isaac. This means an additional mop up of Rs 13,000 crore per month.

Bihar Deputy Chief Minister Sushil Modi also said raising the 5 per cent slab would not help meet the objective. “Although I would not like to comment on the matter till a final proposal comes, but hiking the 5 per cent slab will make little difference. 

It is touching the 18 per cent slab which may help, but difficult to say if it’s feasible,” he said.

However, Punjab has proposed a two-slab formula of clubbing the 5 per cent and 12 per cent slabs, and merging 18 per cent and 28 per cent to simplify the GST rate structure and improve revenues. 

However, officials added that whatever changes would come into effect will be from the next financial year onward to make the process least inconvenient to industry. 

Besides, M S Mani, partner, Deloitte India, said a change of slabs across the board or a change of rates for specific products would require businesses to make significant changes across their value chain and, hence, sufficient time should be given to industry if these changes were necessary.

What’s more, some items will also be removed from the GST exemption list that attracted some form of taxation in the pre-GST regime. Items like curd, lassi, soyabean oilseeds, kajal, coconut fibre, and printed books attracted 6 per cent value added tax, but have been exempt under GST.

The need to re-examine the GST slabs arose as the cess collection under GST has fallen short of the requirement to meet states’ compensation requirements. The Centre has not compensated states for the last four months. Kerala and Punjab have threatened to move the Supreme Court, challenging the non-payment of dues.


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