New Delhi: Looking for various ways to augment revenue for the states and reduce their dependence on the Centre for compensation, the GST Council, in its forthcoming meeting, is likely to push for raising the lowest tax slab to 8 per cent from 5 per cent currently. A panel of state finance ministers is likely to submit its report by this month in this regard, sources close to the development said on Sunday.
At present, the GST rates have a four-tier structure, consisting of 5, 12, 18 and 28 per cent rates. Essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Besides, luxury and sin goods attract cess on top of the highest 28 per cent slab, and this cess collection is used to compensate states for the revenue loss arising from the GST rollout.
The Council, chaired by Union Finance Minister Nirmala Sitharaman, and comprising her state counterparts, had last year set up a panel of state ministers, headed by Karnataka Chief Minister Basavaraj Bommai, to suggest ways to review the position of revenue and augment it further by rationalising tax rates and correcting anomalies in tax rates.
When the GST regime was introduced on July 1, 2017, the Centre had agreed to compensate states for five years till June 2022, and protect their revenue at 14 per cent per annum over the base year revenue of 2015-16. It has been observed that over this five-year period, due to reduction in GST rates on several items, the revenue neutral rate has come down from 15.3 per cent to 11.6 per cent.
The sources said with the GST compensation regime ending in June, it is imperative that states become self-sufficient and not depend on the Centre for bridging the revenue gap in GST collection.
They said the GST Council is expected to meet later this month or early next month and discuss the report of the GoM and take a view on the revenue status of the states. "With hiking of the proposed tax rates, the group of ministers' panel is expected to raise an additional Rs 1.50 lakh crore in annual revenues. With lower revenue neutral rate, the states stare at a shortfall of about Rs 1 lakh crore and efforts have to be made to make GST revenue neutral and the only way to do it, is to rationalise the tax slab and check evasion," a source sa...