The Centre is likely to convene GST Council meeting next month. On the agenda will be a rationalisation of taxes and inverted duty structure for certain goods. Find out what to expect from the meeting
Another round of rationalisation of tax rates is on the cards. The Centre is looking to convene a meeting of the Goods and Service Tax or GST Council in early January. Besides rate rationalisation, a correction of the inverted duty structure is also expected. Inverted duty structure is when inputs for a product are taxed at a higher rate than the outgoing product itself.
At the 45th GST Council Meeting in Lucknow on September 17, the Council had set up a Group of Ministers or GoM headed by Karnataka chief minister Basavaraj Bommai to look at the possibility for rate rationalisation and correction of the inverted duty structure.
The GoM’s report is expected to be finalised before the January meeting of the GST council. We may also see more talks on merging one or two tax slabs. These recommendations were recently made by the National Institute of Public Finance and Policy (NIPFP), a finance ministry-backed think-tank.
The NIPFP study suggests that the government can rationalise the GST rate structure without losing revenues by rejigging the four major rates of 5%, 12%, 18% and 28% with a three-rate framework of 8%, 15% and 30%. The study estimates that if the GST rate structure prevailing at its onset in July 2017 was restored last year, additional GST revenues of nearly ₹1.25 lakh crore could have accrued in 2020-21.
In fact, at the last GST Council meeting in September, Finance Minister Nirmala Sitharaman had pointed out that multiple rate changes since the onset of GST in 2017 had lowered the revenue-neutral rate from the original 15.5% to 11.6%.
We can, therefore, expect an increase in the GST rates or a merger of slabs so that the average GST rate would inch closer to the revenue neutral rate. With the GST regime completing 4.5 years, it may be time to consider an overhaul of the rate structure for the long term. But the industry must be given sufficient time to incorporate any such changes. We cannot risk destabilising the GST system right when the economy is bouncing back.
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