GoM Approves Centre's Proposal To Move to Simplified GST Rate Of 5 and 18 pc
Though the GoMs favoured the Centre’s slab rejig plan, which will benefit the common man, some members wanted ultra-luxury items, like high-end cars, to be subject to an additional levy on top of the special 40 per cent tax
New Delhi: The much-anticipated two-slab structure in ‘next-gen’ GST regime may be a reality before Diwali for the middle class, MSMEs and farmers, as the group of ministers (GoMs) on Thursday in-principle approved the Centre’s proposal to move to a simplified GST rate of 5 per cent and 18 percent, while recommending the scrapping of 12 per cent and 28 per cent rate from the current GST slab. The government’s proposal on this matter is likely to be discussed in the forthcoming GST Council meeting to be held next month, according to a GoM member.
Though the GoMs favoured the Centre’s slab rejig plan, which will benefit the common man, some members wanted ultra-luxury items, like high-end cars, to be subject to an additional levy on top of the special 40 per cent tax. However Opposition-ruled states raised issues on the revenue loss from the move and how that would be bridged.
The two-day meeting of GoMs with the finance minister came days after Prime Minister Narendra Modi’s announcement on 79th Independence Day, underlining the need for changes in GST that benefit the common man, farmers, middle class, and MSMEs, calling GST since 2017 a major reform for the nation. As per the government’s blueprint, structural reforms will target inverted duty structures to reduce input tax credit accumulation, classification disputes to cut litigation, and ensure long-term rate stability.
The GoMs, headed by Bihar deputy chief minister Samrat Choudhary, discussed the Centre’s proposal of reducing the number of slabs under the goods and services tax or GST to 2 (5 and 18 per cent) from 4 (5, 12, 18, and 28 per cent). The Centre has also proposed a 40 per cent rate for 5-7 select goods. However, the government wants rate rationalisation to include reducing taxes on essential and aspirational goods, shifting to the two-slab system, and using fiscal space created after the end of the compensation cess to align rates for sustainability.
Recommendations of the 6-member panel, which has 3 members from BJP-ruled states of Bihar, Uttar Pradesh and Rajasthan, and an equal number from opposition-ruled states of Karnataka (Congress), Kerala (Left Front) and West Bengal (TMC), will go to the high-powered GST Council, which will take the final call on the reforms.
"The GoM has decided to accept the two proposals of the Centre,” Choudhary said. The proposal of the Centre to remove the 12 and 28 per cent slabs was accepted, and we have given recommendations," Choudhary said.
Currently, a GST compensation cess is levied on select goods, such as tobacco products, aerated drinks and motor vehicles at varying rates. Telangana deputy chief minister Mallu Bhatti Vikramarka said rate rationalisation must be balanced by ensuring that the revenues of the states are protected. Otherwise, the welfare schemes meant for poor people, the middle class and infrastructure projects would suffer.
Telangana supports the proposed rate rationalisation as a part of GST reforms, but with a proper compensation mechanism, an official statement issued by the state government said. The Telangana minister, however, suggested that either the current compensation cess mechanism be continued, or alternatively, the GST rates on sin or luxury goods may be increased to their present levels, and the additional amount collected may be given to the states.
Uttar Pradesh finance minister Suresh Kumar Khanna also said all states welcomed the Centre's proposal, saying it is in the interest of the common man. Ultra-luxury goods, including ultra-luxury cars, and sin goods will fall in the 40 percent tax bracket. “Some states demand that states should be compensated for revenue loss upon implementation of the new rate structure. The revenue loss will be calculated,” Khanna said.
West Bengal finance minister Chandrima Bhattacharya said the Centre's proposal presented before the GoM on rate rationalisation did not include the revenue loss that is going to accrue on account of rate and slab changes. “We have said we are okay with any rate rationalisation proposal, which is pro-people, but we should also know what is the revenue loss that we are going to suffer. Because, ultimately, if a state suffers any loss, then it boils down to the sufferance of the common man,” she said.
