Under attack for continuing GST woes, the Centre may squeeze tax slabs under the new tax regime. Fewer slabs could benefit both companies and customers.

Ahead of the GST Council meet on October 6, finance minister Arun Jaitley on Sunday hinted at the possibility of reducing goods and services tax (GST) slabs, saying there is scope for fewer slabs once there is revenue buoyancy. The first two months of GST rollout has seen robust revenue collection for the government.

“We are in first 2-3 months (of GST implementation). We have almost by the day, space and scope for improvement. We have space for improvement and need for improvement to reduce compliance burden as far as small taxpayers are concerned,” Jaitley said.

The statement assumes significance as several relief measures are slated to come up for discussion in the October 6 meeting. The issue of fewer slabs could also figure in the meeting, considering the fact the government is under attack from different quarters for slow paced growth of the economy, tax experts said.

“We have space for improvement, eventually once we become revenue neutral, to think in terms of bigger reforms such as lesser slabs, but for that we have to become revenue neutral...,” he said at an event organised near here by the National Academy of Customs, Indirect Taxes and Narcotics (NACIN).

The total GST collection was Rs 90,669 crore in August. In July, the total indirect tax revenue was Rs 92,283 crore from 64.42 per cent of the total taxpayer base.

The GST regime slots items under four rates of 5, 12, 18 and 28 per cent. An additional GST compensation cess is also levied on certain products to fund revenue losses to states in the new regime.

The government has, however, been facing flak for alleged shoddy implementation of the tax reform. While government has maintained that prices of most essential items have come down after GST, there has been sudden spoke in wholesale and retail prices in the last two months. Retail inflation reached its five-month high of 3.36 per cent in August due to costlier food items.

The government has been responding to new situations emerging after GST. In the last meeting, GST Council revised the tax rates of as many as 30 items, including a hike in compensation cess for bigger cars and SUVs.
In the next meeting, there could be changes in some of the procedural requirements for exporters.

Tax experts, however, do not see a rejig of tax rates for many items in the next GST Council meeting. They expect reduction in GST slabs only after six months or so after the new structure stabilises.

“In the medium term we see only exceptional items such as bigger cars and tobacco products to be taxed under 28 per cent. We don’t expect the 28 per cent slab to go anytime soon but items such as body wash could be brought under 18 per cent,” said a Mumbai-based tax consultant.

Industry and tax experts have always advocated for fewer GST rates arguing it will help in classifying various products under them and hence reduce litigations. “Today, many companies are struggling to classify their products. While companies would want to put their products under a particular rate, tax authorities would want to put them at a higher rate. As a result there could be litigations in future. If there are lesser slabs, classification would be easier for companies and litigation on account of GST would significantly reduce,” said MS Mani, senior director (indirect tax) at Deloitte Haskins & Sells LLP.

Customers would also stand to gain as fewer rates may lead to overall reduction in tax incidence.

Meanwhile, Jaitley noted that indirect tax burden is borne by all sections of the society and therefore it is always the endeavour of the government to bring down tax rates on mass consumption commodities.

“Direct tax is paid more by the more affluent, somewhat by the others and certainly not by the weaker section but the impact of indirect tax places burden on all,” he said.