The Group of Ministers (GoM) on GST rate rationalisation on Thursday accepted the Centre’s proposal to restructure the indirect tax system by reducing the number of slabs to two ie 5 percent and 18 percent. The six member Group of Ministers, headed by Bihar Deputy Chief Minister Samrat Choudhary, accepted the Centre’s proposal of reducing the number of slabs under the Goods and Services Tax (GST) to two (5 and 18 per cent) from four (5, 12, 18, and 28 per cent).
While the GoM was in favour of rate and slab rejig if it benefited 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.
Under the plan, 99 per cent of items currently taxed at 12 per cent would be shifted to the 5 per cent slab, while 90 per cent of those under the 28 per cent bracket would move to 18 per cent. A higher 40 per cent levy is likely to be retained on 5-7 “sin goods.”
Recommendations of the six-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,” Bihar Deputy Chief Minister Samrat 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.
This comes after, the Centre proposed reforms, in which it has argued that rate rationalisation would simplify the indirect tax system while ensuring relief for households, farmers, the middle class and MSMEs. Finance Minister Nirmala Sitharaman told the GoM earlier this week that the reform would create a “transparent and growth-oriented” regime.
Members of the GoM include Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Minister Gajendra Singh, West Bengal Finance Minister Chandrima Bhattacharya, Karnataka Revenue Minister Krishna Byre Gowda and Kerala Finance Minister K N Balagopal.
Uttar Pradesh Finance Minister Suresh Kumar Khanna 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 per cent 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 Statesuffers any loss, then it boils down to the sufferance of the common man. The GST Council will discuss the rate proposal item by item,” she said.
Bhattacharya said she has suggested that Section (1) of the GST Act be amended so that a levy can be imposed over and above the 40 per cent maximum permissible rate to ensure that the tax incidence on ultra-luxury and sin goods remains the same even after the slab changes and once the compensation cess ends.
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 will 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 StateGovernment said.
The Telangana minister 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 so collected may be given to the states.
On Wednesday, a GoM on insurance discussed the Centre’s proposal to exempt GST on health and life insurance policies for individuals. The proposal is likely to have a revenue impact of Rs 9,700 crore per year, but most states favoured the proposal.
At present, Goods and Services Tax is a 4-tier structure of 5, 12, 18 and 28 per cent. While food items are either taxed at 0 or 5 per cent, luxury and sin goods are taxed at 28 per cent.On top of the 28 per cent slab, cess at varied rates is levied on demerit and luxury goods, like cars.